GENERM- 
 
 LIBRARY 
 
 OF THE 
 
 UNIVERSITY OF CALIFORNIA. 
 Accession 9.6..Q..3.2 .... Class 
 
PRINCIPLES AND PRACTICE 
 OF FINANCE 
 
 A PRACTICAL GUIDE FOR BANKERS, MERCHANTS, AND 
 LAWYERS. TOGETHER WITH A SUMMARY OF THE 
 NATIONAL AND STATE BANKING LAWS, AND THE 
 LEGAL RATES OF INTEREST, TABLES OF FOREIGN 
 COINS, AND A GLOSSARY OF COMMERCIAL AND 
 FINANCIAL TERMS. 
 
 BY 
 EDWARD CARROLL, JR. 
 
 G. P. PUTNAM'S SONS 
 
 NEW YORK LONDON 
 
 27 WEST TWENTY-THIRD STREET 24 BEDFORD STREET, STRAf 
 
 <&t Knickerbocker Press 
 1897 
 
,1,0 
 
 COPYRIGHT, 1895 
 
 BY 
 EDWARD CARROLL, JR. 
 
 GENERAL 
 
 Ube Iknicfeerbocfcer press, TOe\v IRocbelle, 1R 
 
PREFACE. 
 
 WHILE there are many books treating of the principles 
 of money and some which discuss the operations of 
 finance, to the writer's knowledge there is no one work 
 combining both a treatment of principles and a discussion 
 of practices. This apparent want the writer has sought 
 to supply in the present work, and he hopes that the 
 practical information contained herein will be sufficient 
 reason for its issue. This book is intended to be a prac- 
 tical one, from which a person can obtain data on the 
 subjects treated, rather than an exhaustive exposition of 
 the theory of money. The Principles of Finance are dis- 
 cussed only to that extent deemed necessary to enable 
 the reader, uneducated in the principles of money, to 
 clearly understand the Practice of Finance. 
 
 The book is divided into two parts. The first which 
 deals only with the Principles of Finance, and the second 
 which is confined to the practical application of those 
 principles through the machinery of finance and com- 
 merce. 
 
 The principles of finance are discussed in the first two 
 chapters in as short space as is compatible with a suf- 
 ficiently comprehensive treatment to make them clear. 
 
 The remainder of the book is devoted to the Practice 
 of Finance, and, while it is necessarily not exhaustive, it 
 has been sought to discuss those parts of finance, a knowl- 
 edge of which is most necessary. 
 
 96032 
 
IV PREFA CE. 
 
 The writer, fully realizing the practical impossibility of 
 any one individual possessing sufficient information of 
 the various subjects discussed to treat of them authorita- 
 tively, has freely availed himself of information obtainable 
 by him, and desires here to acknowledge his indebted- 
 ness to many bankers and business men for their kind 
 interest in his work and the valuable data afforded him. 
 
 The entire manuscript, involving as it necessarily does 
 many legal questions, has been submitted to Messrs. Red- 
 field & Redfield, whom the writer desires especially to 
 thank for their painstaking work. The author's thanks 
 are also due to Mr. D. D. Sherman for his able advice as 
 to many legal questions ; to Mr. Frank H. Edmunds for 
 information in regard to the presentation and protest of 
 negotiable paper; to Mr. I. L. Carroll for valuable data 
 in relation to stocks and bonds ; and particularly to Mr. 
 Maurice L. Muhleman, of the United States Sub-Treasury 
 at New York, for his uniform courtesy in supplying the 
 writer with statistical information, and especially in regard 
 to the United States Sub-Treasury ; and to Mr. William 
 Sherer, the present manager of the New York Clearing 
 House, for information in relation to that institution. 
 
 No one realizes more fully than the writer the liability 
 to error in a work covering so large a field, the informa- 
 tion for which must be drawn from many sources ; and 
 while he cannot even hope, despite his efforts to render 
 his work as free from error as possible, a complete immu- 
 nity therefrom, he asks for a fair consideration of the work 
 in its entirety. 
 
CONTENTS. 
 
 PART I. 
 
 PRINCIPLES OF FINANCE. 
 CHAPTER I. 
 
 PAGE 
 
 Introductory Barter Value Barter Money Bullion Metal 
 Money Fiat Money Paper Money Government Regulation of 
 Money and Currency ......... I 
 
 CHAPTER II. 
 Capital Credit Interest Exchange Price . . . 27 
 
 PART II. 
 PRACTICE OF FINANCE. 
 
 CHAPTER I. , 
 
 Money and Currency of the United States The New York Sub- 
 Treasury ........... 60 
 
 CHAPTER II. 
 Banks National Bank Act 68 
 
 CHAPTER III. 
 
 State Banks New York State Banks of Deposit, and Banking Laws . 90 
 
 v 
 
vi CONTENTS. 
 
 CHAPTER IV. 
 
 PAGE 
 
 Methods of Business of Banks Loans Mutual Assistance Over- 
 Certification Reclamation Management Board of Directors 
 Officers and Employes . . . . . .no 
 
 CHAPTER V. 
 New York Clearing House ........ I3 2 
 
 CHAPTER VI. 
 Savings Banks 138 
 
 CHAPTER VII. 
 Trust Companies . . . . . . . . . .15 
 
 CHAPTER VIII. 
 
 Safe Deposit Companies Building and Mutual Loan Associations 
 Co-operative Loan Associations Mortgage and Debenture Com- 
 panies ........... 163 
 
 CHAPTER IX. 
 
 Private Bankers Brokers Stock Brokers Note Brokers Puts and 
 
 Calls 178 
 
 CHAPTER X. 
 Exchanges New York Stock Exchange ...... 194 
 
 CHAPTER XI. 
 Corporations, Officers, Etc. ........ 200 
 
 CHAPTER XII. 
 Stocks, Bonds, Interest Warrants, and Receivers' Certificates . . 209 
 
 CHAPTER XIII. 
 Commercial Houses Commercial Agencies ..... 230 
 
 CHAPTER XIV. 
 
 Transmission and Remittance of Money Money Orders Cheque 
 
 Banks Commercial Bills Cable and Telegraph Transfers . . 237 
 
CONTENTS. VI 1 
 
 CHAPTER XV. 
 
 PAGE 
 
 Notes Endorsements Drafts Bills of Exchange Notary Presen- 
 tation Protest Notice of Protest Checks Course of Check 
 through a Bank Cashiers' Checks Certificates of Deposit 
 Letters of Credit Table Showing U. S. Treasurer's Valuation of 
 Foreign Coins Table Giving Weight of Alloyed and Pure Metal 
 of Units of Value of Principal Countries 246 
 
 CHAPTER XVI. 
 Inte r est Grace Legal Holidays ....... 268 
 
 GLOSSARY 277 
 
 INDEX 305 
 
OF T 
 
 PRINCIPLES AND PRACTICE OF 
 
 FINANCE. 
 
 PART I. 
 
 PRINCIPLES OF FINANCE. 
 
 CHAPTER I. 
 
 Introductory Barter Value Barter Money Bullion Metal Money 
 Fiat Money Paper Money Government Regulation of Money and 
 Currency. 
 
 IN order that the subject of this work " Finance," should 
 be clearly presented and intelligently read, it is deemed 
 necessary to point out, if but briefly, the natural develop- 
 ment of its different principles ; and after the development 
 of those principles has been indicated, their application to 
 business and financial methods and systems will be dis- 
 cussed. 
 
 The various articles on the principles of Finance are not 
 intended to be exhaustive, but simply to lay a ground- 
 work for the proper understanding of those principles in 
 their application to the business of Finance. 
 
 First. As to the development of principles ; which it is 
 well to trace from their birth. 
 
2 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 In the earliest stage of human existence, when primitive 
 man secured or accumulated by effort or by accident 
 something which was either useful to or which was desired 
 by others, and for the possession of which they were will- 
 ing to part with some possession, such thing became val- 
 uable, and the principle of value was established. 
 
 So soon as an exchange was effected of one thing for 
 another, that minute the principle of barter came into be- 
 ing. It was not possible however that the possessor of a 
 particular commodity in excess of his immediate needs 
 should be able to exchange that commodity for all the 
 other commodities or things which he desired ; resort was 
 therefore had to the conversion of such surplus into some 
 intermediate commodity which the owner could use at his 
 pleasure in procuring what he wished, and upon the ex- 
 change of such surplus for this intermediate value or com- 
 modity, the third great principle of finance and the first 
 and chief function of true money was established. Nec- 
 essarily this intermediate value must be one of as nearly 
 as possible staple and indestructible value and hence nat- 
 urally would become not only an intermediate value, but 
 also the agent of divisibility of value, and by reason of its 
 possession of these qualities it naturally became the meas- 
 ure of the value of other commodities and the fourth 
 principle, a measure of value, arose. 
 
 So soon as this surplus product could be converted into 
 value of a permanent character, and thus made available 
 for future use, an accumulation of value or capital became 
 a fact. 
 
 Credit was surely created when the possessor of one 
 value delivered that value to another, receiving at the 
 time of the delivery a promise that at some future time an 
 equivalent in value would be given. 
 
 The first charge made for the use of capital or credit 
 was " Interest." 
 
 The money-changers were probably'the earliest bankers. 
 
PRINCIPLES OF FINANCE. 3 
 
 They not only changed money, but kept it for others, and 
 loaned it at interest. 
 
 The simplest example of what has since developed into 
 exchange, is where A having a claim against B, and owing 
 a similar amount to C, directs B to pay to C, which being 
 done both debts are cancelled. 
 
 The assumption by early kings of the sole right to issue 
 coins and to compel their circulation, whether possessed 
 of the value stamped on them or not, was the beginning 
 of fiat money, and out of this assumption naturally grew 
 governmental control of both metal and paper money, 
 bankers and banks. 
 
 The money value of things is termed " Price," and 
 " Price " has existed ever since money has been used as 
 a means of expressing values. 
 
 The above constitutes all the real principles of Finance, 
 and on them, singly or combined, every transaction must 
 rest ; and to one or more of them every financial proposi- 
 tion is deducible. 
 
 We shall now discuss these principles somewhat in 
 detail. 
 
 Barter. The simultaneous and direct exchange of one 
 commodity, thing, or value, for another commodity, thing, 
 or value, without the intervention of an intermediate com- 
 modity, such as money, or the promise of some other 
 value or commodity, as credit. 
 
 Barter presupposes a recognition of property rights, as 
 a person would not be likely to make an exchange with 
 another except for what he believed and admitted to be 
 the property of that person. This recognition of property 
 rights marks the first step in the moral development of 
 man from the plane of the lower animals, where, without 
 regard to, or recognition of, the rights of others, he took 
 that which his wishes or necessities dictated, peaceably, 
 stealthily, or forcibly, as occasion required or his mood 
 suggested. When, however, owing to climatic conditions 
 
4 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 or the danger of destruction from other animals more 
 powerful and ferocious than himself, he found it neces- 
 sary for his protection and preservation to live with other 
 men, then a community of interest was created, the very 
 corner-stone of which was individual effort ; but individual 
 effort, in order to be put forth, must be sure of its reward ; 
 this reward must be recognized and accorded by others to 
 be fully enjoyed, i. e., property rights (value). 
 
 Value. Before proceeding further with the discussion 
 of barter we must define Value, the existence of which 
 must be anterior to barter, although barter may be the act 
 which frequently fixes the value of a thing. 
 
 Value the amount of other commodities for which a 
 thing can be exchanged in open market, the ratio in which 
 one thing exchanges against others, the command which 
 one commodity has over others in traffic, in political 
 economy distinguished from " price," which is worth esti- 
 mated in money, while "value" is worth estimated in 
 commodities in general, the quantity of labor, or of the 
 product of labor, which will exchange for a given quantity 
 of some other product thereof. 
 
 Hence, while value is in the first instance the creation 
 of labor and nothing which Nature supplies in such 
 abundance as to require no labor on the part of man to 
 adapt to his use has any exchangeable value, yet labor is 
 not the only element in determining the exchangeable 
 worth or value of a thing, but supply and demand are also 
 factors. As a broad proposition, however, the amount of 
 labor expended or required in the procuring or produc- 
 tion of a given article, and therefore the amount of labor 
 for which that article can be exchanged, indicates its value. 
 While values are created by labor, it does not follow that 
 all labor creates values, consequently only labor producing 
 some commodity or conferring some good for which man 
 is willing to part with some other commodity or service 
 need be considered. 
 
PRINCIPLES OF FINANCE. 5 
 
 Limitation of quantity and capability of measurement 
 are two essential elements in order that a thing may 
 possess value. Another requisite is that the commodity 
 have in itself some quality or substance useful or agree- 
 able to man or necessary to the maintenance of other life 
 on which his depends, and by a selection fostered by 
 necessity and ranging over the period of human life these 
 intrinsic qualities of things have been discovered and 
 adapted to man's needs, and the possession of these quali- 
 ties in any substance constitutes, if not the greatest, at 
 any rate, a large portion of their value. 
 
 Barter Resumed. While transactions in barter are 
 perhaps fewer as civilization progresses, yet it is the real 
 basis of all trade and commerce, and the relative values 
 of commodities to each other, as fixed by barter, are what 
 govern now just as much as they ever did, and although 
 the merchant sells his wheat or cotton for so much in 
 money, that amount is regulated after all by how much 
 manufactured product or other commodities the wheat or 
 cotton, for example, will exchange for. 
 
 In order that even Barter should be practised, it im- 
 mediately became necessary that the respective persons to 
 the trade should agree upon some measure of the value of 
 the respective thing or things which they desired to ex- 
 change. The ultimate measure of this value was neces- 
 sarily the amount of effort put forth in the production or 
 procuring of the things to be exchanged, in other words, 
 the labor. 
 
 As long as barter was confined to individuals of the 
 same tribe, probably the article of most general use in the 
 tribe was accepted as such measure. Thus, among pas- 
 toral people, the sheep, horse, or cow was the measure of 
 value ; whereas, among agricultural people, a given quan- 
 tity of some cereal was doubtless used for this purpose. 
 As long as this barter did not go beyond the confines of 
 trade which, in its more restricted and technical mean- 
 
6 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 ing, is the dealing between individuals of the same com- 
 munity, a local measure of value was sufficient ; but the 
 moment it grew into commerce or the dealing between 
 communities or countries, or the individuals of different 
 countries or tribes, that moment another and more gen- 
 erally accepted standard became absolutely necessary. 
 
 We have now come to the consideration of one of the 
 functions of money which will be treated more in detail 
 under the head of money. We have neither the time 
 nor the inclination to trace the different standards of 
 value, nor do we believe that it could be here done to 
 advantage. 
 
 Metals, being the first commodities of general use by all 
 peoples by natural selection, became the measure of 
 value. 
 
 In this connection we naturally inquire why metals 
 should have been selected, as we know there must have 
 been good reasons, first why they were selected, and 
 secondly why their use should have continued. 
 
 We answer : First, because of their value the large 
 amount of value compressed into a small compass. Sec- 
 ond, their portability the ease with which they can be 
 taken from place to place. Third, their comparative in- 
 destructibility, metals being the least destructible of all 
 substances capable of receiving an impress marking their 
 value. Fourth, their homogeneity a given weight of a 
 particular metal being, or capable of being, made of equal 
 value. Fifth, divisibility the quality of being divided 
 into larger or smaller proportions without disproportion- 
 ate accretion or loss. Sixth, their stability of value i. e., 
 the ratio in which they exchange for other values ; and 
 seventh, cognizibility, impressibility, or coinability mean- 
 ing not only a general recognition of their commodity 
 value, but also the ability to impress or stamp letters or 
 characters. 
 
 These conditions are essential, and the metal possessing 
 
PRINCIPLES OF FINANCE. 7 
 
 most of these characteristics will by a law as certain as 
 that of gravitation, be chosen as the measure of value. 
 Mankind has found that gold possesses in a larger degree 
 than any other metal these essentials, hence its almost 
 universal choice among civilized nations as the measure 
 of value. 
 
 Barter necessitates immediate exchange, but it is not 
 always either possible or desirable to immediately deliver 
 or receive the article or articles, service or advantage 
 given or sought. Hence we naturally seek to convert the 
 product of our labor into some commodity of stable, in- 
 destructible, and well recognized value, with which we may 
 at our convenience secure what portion we desire of other 
 commodities or services. This brings us to the consider- 
 ation of the divisibility of value, and on this question it is 
 well to be somewhat explicit. 
 
 It is often erroneously asserted that money is necessary 
 for the purpose of divisibility, especially where the divi- 
 sion is effected at a time remote from that of the original 
 transaction. The following illustration will show that 
 such is not the case : 
 
 A farmer takes to market say a thousand bushels of 
 wheat. This he desires to exchange for other commod- 
 ities. Should he receive in exchange for his wheat, at the 
 time of delivery, one particular commodity of equal value, 
 the barter would be completed then and there ; but the 
 probabilities are that he would not need only one thing, 
 but many, some of which would not be possessed by the 
 person with whom he dealt, hence he would have to act 
 as his own distributing agent, making many transactions 
 in order to secure the different commodities for which he 
 was desirous of exchanging his wheat, and probably not 
 getting what he wanted at once or when he wanted it. 
 
 To avoid these numerous exchanges, and to economize 
 not only the farmer's time, but the time of those with 
 whom he deals, the merchant or distributing agent has 
 
8 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 arisen. To the merchant the farmer sells his wheat, and 
 from him receives either money an intermediate value, 
 exchangeable at any time for any of the many values 
 which he desires in exchange for such wheat or a credit 
 improperly called, in reality an obligation of the mer- 
 chant, which he can use as his necessities or wishes 
 dictate in the purchase of those commodities which he de- 
 sires. Or credit may have been extended to the farmer 
 in anticipation, or the value of the wheat may have been 
 advanced him in various other values before the wheat 
 was delivered. 
 
 This certainly is the method by which a large majority 
 of the country stores throughout the States are conducted ; 
 and while the intervention of credit or money as a 
 medium of exchange and divisibility would technically 
 destroy the character of the transaction as one in simple 
 barter, as a matter of fact it only facilitates the disposal of 
 values and avoids the necessity of the immediate consum- 
 mation of the final exchange, rendering it possible for the 
 parties thereto to receive such commodities at such times 
 as they desire. 
 
 Inasmuch as the agricultural products of the world, 
 while produced during different months in various coun- 
 tries, are still, generally speaking, only produced in each 
 country during about six months of the year, and as all 
 men must subsist upon that which has been produced, it 
 follows that man must make provision during those six 
 months for his subsistence and maintenance during the 
 other six months, and the surplus then produced must be 
 so exchanged as to provide him with a credit from the 
 ending of such season till the produce of the next season 
 is marketable. Hence credits occupy so important a posi- 
 tion in commercial life. It may be said, broadly speaking, 
 that, the world over, man lives twelve months on the 
 product of six months' labor, and that in these six months 
 he must provide for the twelve months which are to fol- 
 
PRINCIPLES OF FINANCE. 9 
 
 low. This, perhaps, is not true to the same extent of 
 the peoples engaged in manufactures and distribution, 
 which after all are but auxiliary industries dependent 
 for their life upon those creative industries, of which 
 agriculture, fisheries, and mining are the principal, 
 these industries creating values, whereas manufactures 
 and distribution simply change the form of, and add to, 
 the value of the raw material. Although what has just 
 been said belongs more particularly to credit than to 
 barter, still, as credit is but the outcome of barter and 
 dependent upon barter, it has been thought best to here 
 insert it. 
 
 The business of the world is done strictly on the basis 
 of barter, and the vast credits which are extended are but 
 the representatives of the enormous transactions in barter ; 
 money, on account of its insignificant proportion to the 
 exchanges consummated annually, forming but a relatively 
 small item to credit in the commercial transactions of 
 the globe. 
 
 While a comparatively small percentage of the business 
 of the world is done by direct and immediate exchange 
 of one or more commodities or values for one or more 
 other commodities or values, money or credits nearly 
 always intervening as a medium for the purposes stated, 
 yet inasmuch as all commerce is regulated by barter, 
 money, which does not and cannot in any broad sense 
 either diminish or increase values, and is but a tempo- 
 rary medium in their exchange, must adjust itself to the 
 conditions of barter. 
 
 Having heretofore shown rather incidentally the relation 
 of money to barter, we now proceed to a more specific 
 consideration of the subject. 
 
 Money. Webster defines money as : 
 
 First " A piece of metal, as gold, silver, copper, etc., coined 
 or stamped, and issued by the sovereign authority as a medium 
 
10 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 of exchange in financial transactions between citizens and with 
 the government ; also, any number of such pieces ; coin." 
 
 Second " Any general or stamped promise, certificate, or 
 order, as a government note, bank note, a certificate of de- 
 posit, etc., which is payable in standard coined money, and is 
 lawfully current in lieu thereof ; in a comprehensive sense, any 
 currency usually and lawfully employed in buying and selling." 
 
 Money is, first, a thing possessing a universally recog- 
 nized intrinsic value, but not necessarily of a universally 
 exchangeable power ; and, secondly, money based upon 
 credit, t. *'., promises to redeem in some commodity, 
 usually gold or silver. For the purposes of convenience, 
 gold and silver and other metals, all possessing universally 
 recognized values, have been accepted as the money of 
 civilization, and all paper money (credits) or promises to 
 pay are payable in some one or more of these metals. It 
 may be well to remark parenthetically that while money 
 is currency, currency is not necessarily money. 
 
 All true money being itself a commodity, possessed of 
 an intrinsic value, used as a means to facilitate barter or 
 the exchange of one value for another, and being always 
 of a smaller aggregate value than the combined value of 
 the numerous commodities or values, the exchange of 
 which it is called upon to facilitate, must adjust itself to 
 this greater combined value, rather than that the greater 
 value of all other commodities should adjust itself to 
 money ; although money, being the standard of value, 
 the price of other commodities, as measured by money, 
 changes, and not the price of money. The purchasing 
 power of money in the markets of the world is governed 
 by its commodity value. 
 
 Hence it follows, should the ratio of increase of money 
 be greater than the ratio of increase of other values, or 
 should a given amount of labor produce a larger quantity 
 of bullion, then the purchasing or exchangeable power of 
 money becomes less, and other values, which are meas- 
 
PRINCIPLES OF FINANCE. II 
 
 ured by it, greater, as was illustrated by the discovery of 
 gold in California, when, owing to the vast supply of gold 
 and the comparatively small output of labor required to 
 secure it, the relation between it and other commodities 
 was disturbed, and its exchangeable value became very 
 much less, and the relative value of the other commodities 
 to it very much greater. Should the ratio of increase of 
 money be less than the ratio of increase of other com- 
 modities, then the relative value of money becomes greater 
 and the value of all other commodities, compared with 
 this particular commodity (money), less ; but should the 
 other commodities maintain their relative value to each 
 other, the holders of other commodities are not -sufferers 
 thereby, as their relative value to each other is not dis- 
 turbed, and the holder of money is certainly just as much 
 entitled to receive the benefit of its enhancement in value 
 as he is liable to suffer the loss of its depreciation. 
 
 Paper money, or promises to pay, secured by a mort- 
 gage of either the income of a government or a compulsory 
 deposit or retention by an individual or corporation of a 
 certain percentage of bullion, is not and cannot in any 
 sense be considered true money, but should be designated 
 as currency, as it passes current in lieu of money, and as it 
 lacks the universality of value and exchangeable quality 
 which all true money does possess. Its usfulness as a 
 means of facilitating exchange or barter is measured by the 
 knowledge of the acceptor of such currency of the ability of 
 the issuer to redeem it in coin ; thus gold and silver, pos- 
 sessing as they do a universally known intrinsic value, are 
 receivable in every portion of the world, civilized and un- 
 civilized ; but a legal-tender note of the United States, or 
 a Bank of England note, would not be received in ex- 
 change for values by people ignorant of the ability of the 
 respective issuers or obligors to redeem such promises, or 
 to give for such notes an exchangeable value proportion- 
 ate to the value of the commodity transferred. 
 
12 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Paper money is nothing more than a promisory note 
 payable on demand in a particular commodity (money). 
 Should either the government or the individual promising 
 to pay fail so to do the note would simply be a piece of 
 writing, obligating the issuer to the payment of that value, 
 and nothing more, and its value is therefore dependent 
 upon the ability of the issuer to pay. 
 
 One of the chief uses of money is as the measure of 
 value, and in the treatment of this aspect of the question 
 it is impossible to avoid some discussion of whether there 
 should be one or more measures of value, and whether it 
 be necessary that all money should be a measure of value, 
 rather than some particular kind of money. It does not 
 deprive a particular kind of money of its utility that it is 
 not the universally accepted measure of value, but only 
 deprives it of one function and makes it subsidiary in one 
 respect, as a measure of value, to the money which is such 
 measure ; nor does it deprive it of its intrinsic value, which 
 still remains, and is recognized in different proportions by 
 different peoples ; but for the convenience of commerce 
 it is not only best, but absolutely necessary, that some 
 particular form of money should be the accepted measure ; 
 and that form which possesses in itself the greatest intrin- 
 sic value, maintains the most uniform relative value, and 
 is the most convenient for use, will of necessity become 
 the standard of value, and other moneys will have their 
 value regulated by it, exactly the same as every other 
 commodity. 
 
 There can be but one standard of value, and that stand- 
 ard is fixed not by the laws of a particular country or even 
 a number of countries acting together, but by the general 
 consensus of opinion of sellers and buyers. Values are 
 fixed not in the districts where commodities are produced, 
 but in the large distributing centres, cities, where they are 
 fetched for exchange, and the values there agreed upon 
 are everywhere accepted. The value of a commodity is 
 
PRINCIPLES OF FINANCE, 13 
 
 fixed not by its entire mass, the larger portion of which 
 is consumed by its producers, but rather by the surplus 
 which is exchanged. Thus the value of wheat and cotton 
 in the United States is fixed by the price of the surplus 
 sold abroad. In other words, that portion of a commodity 
 or product which seeks exchange in the markets of the 
 world for other commodities fixes the value of that larger 
 portion which does not. Practically all of the great con- 
 suming countries, England, France, and Germany, employ 
 the gold standard as the measure of value. In fact, over 
 80 per cent, of international commerce is directly figured on 
 a gold standard of value, hence gold maybe said to be the 
 practically universal standard ; and even in countries on a 
 silver basis, domestic prices being fixed and regulated by 
 the export prices, the silver coin is accepted as represent- 
 ing so much gold value. To repeat, values are fixed by 
 the exchangeable worth of the surplus of products in the 
 markets of the world. Gold is the standard employed in 
 those markets, consequently the universal measure of 
 value ; and while silver, some other metal, currency, or 
 other forms of credit may be used as gold's representative, 
 still gold is the standard of value in all countries having 
 any foreign trade, even though that metal may be prac- 
 tically unknown to its citizens. 
 
 Before discussing true money more in detail it is neces- 
 sary to say a few words about bullion, of which all true 
 money is composed. The definition usually given " gold 
 or silver in the bar or lump, coined or uncoined," while 
 inexact, and not one which could be accepted without 
 considerable limitation, is perhaps sufficiently near the 
 correct definition for our present purpose. 
 
 Bullion is bought and sold the same as any other com- 
 modity, the price thereof being governed by : I, the de- 
 mand ; 2, the supply ; 3, weight ; and 4, fineness. The 
 price of gold being always stationary, as it is the measure 
 of value, its actual value is determined by its purchasing 
 
14 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 power of other commodities, while the price of silver, and 
 other less valuable metals used for coin, is determined by 
 their relative value to gold. In the case of every metal it 
 is bought where it commands the least value and sold 
 where it commands the greatest. 
 
 The close relation between the shipment of bullion, 
 and a high rate of exchange on the point to which the 
 bullion is sent leads many to suppose that it is sent to 
 such points to pay a balance of trade against the country 
 from which it is shipped. This is not necessarily the case ; 
 but when, for any reason, the rate of exchange to the 
 point of destination reaches the cost of the shipment of 
 bullion, obviously there is no object in purchasing ex- 
 change, and as bullion may be sent at such times more 
 advantageously, and as most foreign houses at that time 
 buy, it is then shipped in greater quantities than when 
 exchange is simply at par, or in favor of the country 
 shipping ; and while this condition of exchange is looked 
 upon as favorable to its shipment, bullion may be shipped 
 at any time. 
 
 From the above it is evident that under ordinary con- 
 ditions the rate of exchange can never be greater than the 
 cost of the actual transportation of bullion, as it would 
 be shipped in such event. 
 
 The business in bullion is almost entirely carried on in 
 this country by private bankers, who are known as dealers 
 in bullion. Most of the houses engaged in this business 
 have agents in Europe, to whom they ship from here, or 
 who ship to them from Europe. 
 
 The scope of this work does not warrant us in treating 
 money from an historical standpoint further than is neces- 
 sary to emphasize certain fundamental principles. Con- 
 sequently, without any attempt to trace its gradual 
 evolution into its present forms, we will consider the sub- 
 ject as it presents itself to us at the present day and shall 
 therefore confine our observations almost exclusively to 
 the money of the United States. 
 
PRINCIPLES OF FINANCE. 15 
 
 Our money, like that of many civilized nations, is now 
 divided into metal money (coins) and paper money (prom- 
 issory notes payable on demand). Both metal money 
 and paper money may be partly or practically wholly fiat 
 money. 
 
 Metal Money or Coins. It is not necessary here to 
 repeat the observations previously made as to the peculiar 
 adaptability of certain metals for use as money, and the 
 advantages of some metals over others for this purpose, 
 so we will proceed directly to the general consideration 
 of this subject. In order to consider which intelligently 
 we must understand the laws governing the coining of 
 metals. 
 
 Previous to the art of coinage, metals were used by 
 weight and fineness for money, which made it necessary 
 for the merchant to have at his command scales and often 
 crucibles to ascertain the same. The inconvenience of 
 this system was such as to demand some change, and the 
 rational solution was the division of metals into small 
 pieces of convenient size and uniform value, with such 
 value attested by some well known and responsible power, 
 and no power so fully met these requirements as the gov- 
 ernment. Hence, the early history of coins clearly estab- 
 lishes the fact that coinage was invariably regarded as a 
 prerogative belonging solely to and exercised only by the 
 sovereign power or government. 
 
 The art of coinage certainly does not date back farther 
 than the ninth century B.C., and the Lydians are sup- 
 posed to have been the first people to have used coin 
 money. 
 
 For various reasons the power to coin money should 
 only be reposed in the person or body of most widely 
 known power, solvency, and integrity, and this is neces- 
 sarily the state. There never has been any attempt at 
 lawful individual issue of coin. It required the govern- 
 ment to properly regulate the weight and fineness and 
 vouch for the integrity of the coins put in circulation. 
 
1 6 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 At first coins were very rude and easily counterfeited 
 and it was necessary to inflict severe penalties to guard 
 against this danger, but even these penalties failed to deter 
 the counterfeiting, mutilation, and clipping of coins, which 
 was made very easy by the practical absence of all protect- 
 ing devices and designs, which at the present day tend to 
 make the simulation of a well minted coin so difficult and 
 expensive as to deprive it of any profit. 
 
 One of the commonest and best known laws governing 
 coins is that in order to keep a coin in circulation the 
 bullion value of that coin should be a little less than the 
 face value, in fact enough less, that no probable fluctua- 
 tion in the market price of the metal of which it is com- 
 posed will render the commodity value of the coin greater 
 than its face value ; otherwise as soon as it becomes so, it 
 is immediately profitable to put the coin into the melting 
 pot and convert it again into bullion. 
 
 Another principle is, that a superior coin will not circu- 
 late side by side with an inferior one. The superior coin 
 being of greater value is either hoarded up and retired 
 from circulation, or, on account of the inferior coin becom- 
 ing the real measure of value, is converted into bullion. 
 The reason of this is very plain, as no debtor will pay his 
 creditor in a better or more valuable coin when he can 
 legally pay him in an inferior and less valuable one. Used 
 as money the value of the superior coin is no greater than 
 that of the inferior coin, whereas it is greater when used 
 as bullion. This principle is known as Gresham's law and 
 furnishes an explanation of the difficulty we have had 
 during the last few years in keeping gold in circulation 
 side by side with silver. 
 
 The working of this principle had been previously illus- 
 trated in this country quite as clearly at the time of the 
 discovery of gold in California, when, owing to the enor- 
 mously increased production of gold, its relative value to 
 other commodities was diminished, and the prescribed 
 
PRINCIPLES OF FINANCE. I/ 
 
 ratio between gold and silver fixed by the government 
 remaining unchanged, silver, the production of which had 
 remained practically stationary, was undervalued. Many 
 of our citizens who at that time possessed silver coin 
 exported it or had it melted up and converted into house- 
 hold articles ; and silver coins went practically out of cir- 
 culation. 
 
 It must, however, be borne in mind that while an in- 
 ferior coin if sufficient in quantity will drive the superior 
 out of circulation, it will only circulate at about its real 
 value, unless the difference between its face value and its 
 real value is guaranteed by some responsible government. 
 
 Fiat Money. This is money issued by a state with 
 presumable power to enforce its acceptance as a legal ten- 
 der in payment of obligations. 
 
 In this sense, of course, all money issued by the state is 
 fiat money, but in the more restricted view only money 
 possessed of no intrinsic value, or of a less intrinsic value 
 than its face value, is fiat money. And as a large quota of 
 money is not possessed of intrinsic value to the amount of 
 its face value, the difference between the two values is fiat 
 money. Paper money issued by a government is wholly 
 fiat money, whether secured by a deposit of securities or 
 of bullion. 
 
 The issue of banks, unless made legal tender by the 
 government, is not fiat money. 
 
 Paper Money. While this subject should be properly 
 treated under the head of " Credit," yet for the purpose 
 of convenience, and because as currency it acts in lieu of 
 real money, it has been decided best to discuss it here. 
 
 Until within the last few hundred years, a compara- 
 tively recent date in the history of money, paper money 
 was not used in Europe, although the Chinese are supposed 
 to have used it even before the Christian era. 
 
 Unlike coined money, the issue of paper money or 
 credits was never held to be a sovereign prerogative, nor 
 
1 8 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 did governments arrogate to themselves the sole power 
 of the issue of credits in this form and the consequent 
 restriction of its use by their subjects. 
 
 In the early European history of paper money its issue 
 seems to have been exercised almost exclusively by indi- 
 viduals and corporations. 
 
 If individuals and corporations could issue their prom- 
 ises to pay and exchange the same for marketable values, 
 why could not a government do the same? Many of the 
 European governments, on account of the frequent wars 
 in which their rulers were engaged, the incidental deple- 
 tion of their treasuries, and the necessity of raising money 
 with which to support large armies and procure supplies, 
 and having exhausted practically all other resources, were 
 compelled sooner or later to resort to this as a last relief, 
 although most have since funded such issues of paper 
 money in the shape of bonds. 
 
 The necessities of the European states, which com- 
 pelled the making or rather forcing of frequent loans 
 from their bankers, gradually created the device of the 
 governments issuing paper money ; but even yet govern- 
 ments did not deem it necessary to restrict the issue by 
 their subjects of credits in this form, and it is only as an 
 extreme measure that any civilized government has ever 
 issued or compelled the acceptance of this paper money 
 as legal tender, thereby making a forced loan and com- 
 pelling the persons accepting such loans to part with a 
 value without receiving any interest for its use. 
 
 All of the great European nations, with a few excep- 
 tions, while reserving to themselves this right, in case of 
 extreme necessity, as a great Avar, do not at present exer- 
 cise it, but have practically done no more than to restrict 
 its use to certain corporations complying with conditions 
 prescribed by them. 
 
 In this country the early issues of paper money by the 
 colonies previous to and by the confederated colonies 
 
PRINCIPLES OF FINANCE. 19 
 
 during the War of Independence were attended with such 
 disastrous results that the Federal power issued no paper 
 money of its own until the early part of the late Civil War. 
 
 Up to the enactment of the National Banking Act in 
 1863, with the exception of the time during which the 
 United States Bank existed, all of our paper money was 
 issued by State banks, the different States delegating the 
 power of issue to banks complying with certain conditions, 
 generally the maintenance of a certain percentage in bul- 
 lion to the notes issued, etc. 
 
 In every representative government it must be borne 
 in mind that this right of issue of credits is one inherent 
 in the individual, and which he, through his representa- 
 tives, has delegated to the state or national government 
 for various purposes, chief among which is the securing of 
 greater uniformity of value and regularity of issue, under 
 conditions sought to make the acceptor of such credits as 
 safe as possible in receiving them. 
 
 After an experience of some seventy years it was proven 
 that even States, owing to lack of uniformity of require- 
 ments and conditions imposed by them upon the banks 
 within their borders, could not ensure a uniform and sound 
 currency. Not but that many of the State laws were 
 models in themselves, but they lacked uniformity. And 
 while some were admirable and furnished an excellent 
 groundwork for the National Bank Act, yet others were 
 very illy conceived and even worse enforced ; some States 
 allowing their banks to issue circulating notes against real 
 estate and various personal and other kinds of security. 
 
 It did not take long to establish the fact that land was 
 not a proper security for paper money ; for the reason 
 that all issues of paper, in order to circulate freely, must 
 purport on their face to be redeemable in coin, and while 
 the land might be of ample value to secure the notes, yet 
 it could not always be immediately converted into coin. 
 This fact was so generally recognized that all of the more 
 
20 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 conservative and successful State systems required the 
 maintenance of a metal reserve and a thorough State super- 
 vision of banks issuing circulating notes (see State Banks). 
 
 Paper money to be of any value must be secured by 
 some value, and when so secured it is a mortgage on that 
 value, and thereby restricts its use, and takes from the 
 channels of trade the amount of the particular commodity 
 by which it is secured, whether it be metal, some other 
 commodity, or real estate. 
 
 As the amount of paper money must be greatly in ex- 
 cess of the metal reserve by which it is secured, to make 
 its issue of any use, if proper safeguards are thrown 
 around such issue, on account of the increase in volume 
 (if needed), it may greatly facilitate commerce and trade ; 
 but while the currency has increased in volume it has de- 
 teriorated in quality, and no more value has been created ; 
 and the question narrows itself down to whether it is bet- 
 ter to have $100,000,000 in metal in active circulation, or 
 to tie that amount of metal up as a reserve to secure the 
 issue of say $300,000,000 of paper. 
 
 The theory of course on which paper money, secured by 
 a deposit of metal, is made to circulate, is that all its 
 holders will not wish its redemption in coin at the same 
 time. 
 
 Additional value and security are given to such money 
 when a government agrees to accept it in payment of a 
 certain class, or of all debts and dues to it ; and this 
 additional value and security is necessarily measured by 
 the proportion the entire issue bears to the amount re- 
 ceivable in payment of such debts, and the ability of the 
 government to continue to receive such money in this way. 
 
 As yet we have only considered paper money payable 
 in coin on demand. Now we must consider inconvertible 
 paper money issued by a government, or paper which is 
 simply a promise to pay, without any or a very small 
 metal reserve to secure it. 
 
PRINCIPLES OF FINANCE. 21 
 
 To this kind of money there are many objections. The 
 most potent of which is that a practically insolvent 
 government if it were not insolvent it would not need to 
 issue this form of money mortgages its future revenues 
 to redeem notes issued to provide for its present indebted- 
 ness or for advances made presumably for immediate 
 uses. Next the great incentive to over-issue, and the 
 necessarily diminishing value of the notes. The placing 
 in the market of a large volume of government credits 
 unsettles values, disturbs commerce, and is certain first to 
 beget over-sanguineness and later on the inevitable de- 
 pression which follows. 
 
 The issuing of demand obligations payable at the option 
 of the holder, the first notice of which option the govern- 
 ment receives when the notes are presented for payment, 
 cannot but be dangerous to that government's credit ; as 
 it is almost certain that so long as the government is 
 amply able to meet its notes their payment will not be 
 demanded, but the very moment its inability is suspected, 
 the time when it most needs its available assets, then 
 the note holders demand payment. The issue of govern- 
 ment notes is generally effected only by either the actual 
 restriction of the issue of individuals, or the practical 
 restriction by making such issue unprofitable. 
 
 Again, the want of elasticity of such a currency ; the 
 issue of which is regulated by the necessity of the govern- 
 ment and not by the needs of commerce ; and no govern- 
 ment is in that close touch with commercial life which 
 enables it to increase such issue when necessary and to 
 contract the amount thereof when not needed. In fact the 
 necessities of a government generally prevent its acting 
 solely with a view to the interests of commerce. 
 
 Indeed, it seems a preposterous contention that the 
 debt of a government should measure the volume of the 
 people's currency, and that debt remain unpaid because 
 it might restrict the amount of currency in circulation. 
 
22 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 The fact is that the very existence of such a currency is a 
 discrimination against the non-governmental issue of 
 credits, and a restriction of the power of the utilization by 
 banks and others of their credits, the United States 
 Government requiring, in order to make a place for its own 
 notes and bonds, banks to deposit in its Treasury United 
 States registered bonds selling at say 117 in order to 
 secure 90 per cent, of their par value in notes, on which 
 issue they must pay the government taxes annually, mak- 
 ing the issue of notes of so little profit that few banks will 
 now issue them, and in reality depriving banks of the use 
 of one of their most profitable rights, the use of their 
 credit as currency, and absolutely prohibiting the exercise 
 of credits in this form by individuals. 
 
 Only banks or bankers and men who are in daily con- 
 tact with business life can be in a position to know the 
 demands of trade, and the regulation of the amount of 
 paper credits in the shape of money is best left under 
 certain restrictions in their hands. They should be given 
 the power upon the deposit of a certain percentage of 
 bullion with some central bank or banks or depositary 
 under the supervision and partial control of the govern- 
 ment to issue paper money when needed, and at their 
 option to retire such issue and reclaim the bullion 
 deposited. 
 
 In this connection it is earnestly suggested that no 
 good reason can be shown why a paper currency should 
 not be regulated by that same law of supply and demand 
 which governs all business transactions ; nor why the 
 government should take from the persons who are the 
 interpreters of that law in all other business relations the 
 interpretation of the law when applied to currency. 
 
 To recur to the subject of an inconvertible paper 
 currency. If such can be made a legal tender in the 
 payment of the government's obligations to individuals, 
 in order to protect the receiver it is necessary that he 
 
PRINCIPLES OF FINANCE. 2$ 
 
 should be able to compel his creditor to accept it in pay- 
 ment of his debt to that creditor, and to the same extent 
 that the first individual has been deprived by the govern- 
 ment of his rights to that extent can he lawfully deprive 
 his creditor of such creditor's rights against him. And it 
 is in order to prevent just this contingency arising, as well 
 as for other reasons, that many contracts are made paya- 
 ble in gold coin of a certain weight and fineness. 
 
 Postage-stamps, while in no sense credits or obligations 
 to pay, but simply evidences of pre-payment of a service 
 to be rendered, yet as they always can command that 
 service, and as it is a service in which the public stands in 
 constant need, are frequently used to remit small amounts. 
 
 Various forms of credit such as checks, drafts, notes, 
 bills of exchange, letters of credit, certificates of deposit, 
 cashiers' checks, etc., greatly assist, if they do not actually, 
 in many instances, take the place of currency. 
 
 In Queensland checks to bearer are used almost entire- 
 ly in place of money and form the general currency of 
 the people. This is an example however that we are 
 happily not called upon to emulate. 
 
 Government Regulation of Money. The regulation 
 of metal and token money has always reposed in the sov- 
 ereign power for reasons before stated. 
 
 The regulation of coinage and its issuance by the mints 
 of the various countries follow naturally from the exer- 
 cise of similar powers in earlier times, as does the issuance 
 of, or the restriction of the issue of paper money by the 
 governments of the present day the issue of token money 
 by the ancients. 
 
 First we will consider how the government obtains the 
 metal which it coins, and secondly, how that metal be- 
 comes distributed among the people. 
 
 Any possessor of gold may deposit the same with the 
 government and have it converted into coin and returned 
 to him minus a small charge for refining where the gold 
 
24 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 is less than y 9 ^ fine. This is practically an unlimited or 
 free coinage of that metal. 
 
 The government does not only coin metal belonging to 
 others, but also the bullion which it receives in payment 
 of obligations due it, which it, in course of time, distrib- 
 utes through its disbursing officers, banks, etc., in pay- 
 ment of its debts, the government paying out annually in 
 coin and currency over $125,000,000 in pensions alone. 
 
 The coinage of silver at different times in the history of 
 this country has been unlimited, except for the seigniorage 
 charge, which at present consists of the difference between 
 the commercial value of the silver in the coin and the face 
 value. Under the Sherman law, now repealed, the gov- 
 ernment bought about $50,000,000 of silver yearly at the 
 market rates per ounce, and coined it at a ratio to gold es- 
 tablished years ago. The difference between the two is 
 generally spoken of as the seigniorage. At other times the 
 coinage of silver has been, and is now, limited in amount, 
 whereas the coinage of gold has always been unlimited. 
 
 The possessor of gold bullion can, and always since the 
 formation of our government could, have it coined ; and 
 there has been no limit to the quantity, while the con- 
 trary is the case with silver, the government only coining 
 its own silver in such quantities as it needs. 
 
 Next we must consider the government's issue of paper 
 money and its restriction of the issue of such money by 
 others. This money when issued by the government 
 reaches the channels of trade in just the same way that 
 coin owned by the government does that is, it is paid out 
 in discharge of the government's obligations, frequently 
 in payment of bullion or coin furnished the government 
 by others and by them paid out to their creditors or in 
 purchase of commodities or values. 
 
 That portion of paper money issued by others and the 
 extent of which issue is restricted by the government is 
 first printed and issued by the government to the banks 
 
PRINCIPLES OF FINANCE. 2$ 
 
 on a deposit by the banks with the government of United 
 States bonds, as is more fully described in the condensa- 
 tion of the National Banking Act. These bills are then, 
 by the banks, loaned or used in the payment of their ob- 
 ligations, or the extension of their credits, and thus be- 
 come disseminated among the people. 
 
 Neither the Federal or State government nor any cor- 
 poration or individual can remain solvent and part with 
 money except it or he receive for the money an equiva- 
 lent value. It is true a corporation or an individual may 
 lend its issue to others on promises of payment, and 
 State, municipal, and county governments have at times 
 issued their bonds in support of, or have guaranteed, 
 semi-public and semi-private enterprises ; and even the 
 United States Government has guaranteed and paid the 
 interest on the bonds of certain railroads, but they have 
 never gone so far as to issue their money except in pay- 
 ment of their own debts already incurred, or in the pur- 
 chase of values. Nor is the government guarantee of the 
 payment of national bank notes a violation of this rule, 
 as at first glance it might appear to be, because the gov- 
 ernment not only secured by the institution of national 
 banks a safe means of placing its bonds on the market, 
 but by compelling a deposit of those bonds to secure 
 these national bank notes, as well as by the imposition of 
 a tax on their circulation, amply protected and at the 
 same time compensated itself for the risk assumed. In 
 other words, it made that part of its debt, which it com- 
 pelled national banks to purchase and deposit with it as a 
 condition precedent to operation, the security of the cir- 
 culating notes of these banks. 
 
 The government can neither give away money (pensions 
 are considered a debt) nor loan it, and if it did either to 
 any great extent the issue would become so large as to 
 render the small security in the shape of bullion and the 
 revenues available for the redemption of such issues prac- 
 
26 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 tically valueless, and the issue worthless. The govern- 
 ment should receive equivalent value in some shape for 
 every dollar put into circulation by it. 
 
 It has been suggested that the government might make 
 advances to certain classes, on different kinds of produce, 
 etc. in other words, go into the business of loaning money 
 on commercial paper and warehouse receipts. Bankers, 
 merchants, and warehousemen will do this now, on good 
 security. Certainly the government could not long con- 
 tinue to do it on any lesser security than the bankers, 
 merchants, and others are willing to accept. And if it 
 did, would soon be in a position where it could make no 
 further advances. And if one class is entitled to borrow 
 money from the government, why not all classes ? 
 
 Capital is not and cannot be created by printing 
 " greenbacks," paper money, neither by a government nor 
 by an individual, and the usefulness of paper money is 
 measured by the ability of the issuer to redeem such 
 promissory notes upon demand. Should the issuer part 
 with them without receiving an equivalent value, he places 
 himself in a position where whatever security exists for 
 their payment must soon be exhausted, and where there 
 is no income to provide for the unpaid issue. 
 
 The necessity of government supervision and control of 
 the issuance of both coin and currency in the shape of 
 money has previously been commented upon in the article 
 on " Money," and need not be here repeated. 
 
 As the financial operations of the government with 
 business life are usually consummated not through the 
 Treasury at Washington, but rather through its sub- 
 treasuries and fiscal agencies (national banks, generally), 
 outside of mentioning the amount of money in the Treas- 
 ury, it has been thought best to describe the operations of 
 a sub-treasury, in preference to those of the main Treasury. 
 As that in New York is the largest and most important, as 
 well as fairly typical of the others, that has been chosen. 
 
CHAPTER II. 
 
 Capital Credit Interest Exchange Price. 
 
 Capital. In order to arrive at any true understanding 
 of the meaning of this much-used word, we will have to 
 consider it, first, in the broader definition accorded it in 
 political economy, and secondly, in the more restricted 
 sense in which it is used in commerce. 
 
 In political economy capital is that part of the product 
 of industry not needed for immediate consumption, and 
 which may be used for the support and maintenance of 
 life during a subsequent period of productivity. Capital 
 is the surplus beyond the present necessities: in the case 
 of an individual, of that individual ; in the case of a com- 
 munity or state, of that community or state. Capital is 
 the accumulated product of past labor upon natural 
 objects, over and above the immediate needs of mankind 
 and the animal or mechanical labor which he calls to his 
 aid, and which may be used at a future time. The real 
 capital of either a man or a community is that portion of 
 his property on which he may subsist during some future 
 period, or that which he may exchange for such subsist- 
 ence. Wheat, corn, rye, rice, and other cereals, cattle, 
 hogs, sheep, etc., wool, cotton, and the skins of wild ani- 
 mals are practically the only forms of capital whose value 
 is always real, and not, as in the case of precious stones 
 and many other things, almost wholly dependent upon 
 
 27 
 
28 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 their exchangeable value for the above-named necessities. 
 Few circumstances could arise where these things would 
 not be of value, whereas under many circumstances 
 metals or precious stones would be of no value to the pos- 
 sessor. In fact they derive their only value from a surplus 
 of the necessities of life, the exchange of which they are 
 largely used to facilitate, and as that surplus is greater or 
 less their value increases or diminishes. 
 
 Capital is often described as a moving force, and the 
 fact that it is the surplus which makes possible the con. 
 tinued use and development of wealth and property by 
 providing food, raiment, and other necessities, as well as 
 luxuries of life during this time, is one of its distinguish- 
 ing features from property, or wealth, or value. And yet 
 capital is property, capital is wealth, but it is only that 
 part of property or that part of wealth which, by afford- 
 ing man and his agents subsistence during the period of 
 the development and maturing of the labor expended 
 upon wealth or property, makes that development possi- 
 ble. Capital as the support of labor is the active force, 
 acting on property the passive object. 
 
 Capital is subject to the same laws which govern the 
 whole universe ; it is created, matures, and passes away. 
 Only the most insignificant portion is of a character which 
 renders its disuse without loss possible. Practically the 
 whole of capital, being composed of the articles and com- 
 modities necessary for the maintenance of life, and there- 
 fore of a nature not admitting of permanent preservation, 
 must needs be used in order to supply labor with the 
 power to re-create more capital. 
 
 While an individual may add to his capital by dispos- 
 ing of a portion of his property, the relative amount of 
 capital to property in a community or state cannot be 
 affected by any such transfer unless the capital is fur- 
 nished by some other community or state ; such trans- 
 fers between its own citizens cannot alter the relation of 
 
PRINCIPLES OF FINANCE. 29 
 
 capital to property, but if beneficial to both persons it may 
 afterwards result in increased productivity. 
 
 It cannot be too strenuously insisted that land is not 
 capital, but that its whole value is dependent upon its 
 adaptability to the use of capital upon it. 
 
 Secondly, in its restricted, commercial use, capital is 
 either money or what may readily be converted into 
 money without subtracting from the earning capacity of 
 the industry in which it is invested. Thus the net earnings 
 of a factory after the payment of all charges, or the funds 
 or securities, things or values which may be used without 
 diminishing its plant, is capital, but the sale of its fixtures 
 or machinery would not be in any sense capital, especially 
 if they were necessary to its proper conduct. This inter- 
 pretation is so generally accepted that the results of all 
 sales of machinery, fixtures, or equipment are invariably 
 recorded in the books of all properly managed companies 
 as belonging to their respective accounts and forming no 
 part of capital. 
 
 We will then assume capital to be the fund used in the 
 actual conduct of a business, the place or plant and the 
 fixtures or machinery necessary thereto having been paid 
 for previously or provided for out of other property. 
 
 While by many stock in trade is regarded as capital, 
 which in the broader definition given the word by politi- 
 cal economists it certainly is, yet when used commercially, 
 and considered as the surplus fund by which the business 
 is conducted during the interval between the purchase 
 and sale of this stock, such a treatment, while theoreti- 
 cally correct, is unwise and inexpedient. 
 
 What ratio should capital bear to the business trans- 
 acted ? This is a question which nearly every business 
 man has at some time asked. So much has to be taken 
 into consideration in attempting an answer that most 
 men, appalled at the task, do not attempt it. Certainly 
 only the most general rules can be suggested, so much 
 
30 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 depends upon the nature of the business, the conditions 
 of purchase of stock and the sale of product, the time 
 given the purchaser, and the time he in turn extends to 
 those purchasing from him ; the variations in the price of 
 both the raw material and the manufactured product, the 
 rate of interest which capital commands in the open mar- 
 ket, the condition of the country, and a hundred other 
 things have to be taken into consideration in answering 
 this question as to any particular industry. Of course, 
 less capital is required to conduct a commission business 
 than a business where the goods are purchased outright 
 and sold again, but even here there must be sufficient 
 capital to conduct the business until commissions are 
 earned and received, to make necessary advances, etc. 
 
 In most trades or businesses there is some ratio which 
 careful men consider necessary to maintain under even 
 the most auspicious circumstances. There should certainly 
 be enough capital in a manufacturing business to run the 
 business, pay all expenses, labor, etc., and leave a moder- 
 ate reserve fund on hand, from the time of the purchase 
 of a stock until that stock is made up, sold, and paid for. 
 Where the time consumed is short, less capital is required 
 than where it is long. By way of illustration we will take 
 a factory whose annual output is $1,000,000, ten percent, 
 of which, or $100,000, is profit. $500,000 represents the 
 cost of raw material, and $400,000 of labor, taxes, insur- 
 ance, etc., and which is divided into four purchases of 
 stock, of four periods of three months each. The cost of 
 running the factory for three months would thus be $225,- 
 OOO, or $900,000 annually. It would seem that $225,000 
 would be the smallest sum with which such a factory 
 could be safely and comfortably run ; and this would in- 
 volve turning over the whole capital four times in a year 
 to reach the figures given. A great many factories, how- 
 ever, are not run on this cash basis, but on a credit basis, 
 in which event the owners must, of necessity, pay for the 
 use of the capital of others during the interval between 
 
PRINCIPLES OF FINANCE. 31 
 
 the purchase of the raw material and the sale of the 
 manufactured product. 
 
 In the case of a store carrying a stock of say $ioo,ooo r 
 the amount of capital is dependent upon the length of 
 time required to consummate a sale of the stock. In 
 most retail businesses the goods are sold before the whole- 
 sale merchant is paid, when the money received from 
 their sale is used to pay the wholesaler, in which case a 
 comparatively small capital is required. The ratio is 
 further affected by the amount of bills payable and 
 bills receivable. Capital should always be sufficient to 
 allow for a 20 per cent, depreciation in the value of the 
 stock. 
 
 Capital to be available need not be kept uninvested, 
 because good investments are readily converted into 
 money at a profit ; hence the large holdings by business 
 men of bonds and stocks which have a ready market. 
 
 Capital, if insufficient for the accomplishment of the 
 object aimed at, is often lost, sometimes only partially, 
 other times wholly. The most fruitful source of bank- 
 ruptcy is the undertaking of too great enterprises with 
 insufficient capital. Especially is this true where the 
 enterprise is away from the large money centres. On the 
 other hand must be borne in mind the danger of allowing 
 capital to remain inactive, which is attended in the aggre- 
 gate with almost as serious results, although perhaps not 
 so apparent in individual cases. 
 
 Unemployed capital enforces idleness, which means a 
 decreased production of values, consequently a diminished 
 demand for other values. Active employment of capital 
 on safe lines means just the reverse. 
 
 Credit. Credit is the belief, founded upon a promise 
 that is, contract, expressed or implied by which the 
 possessor of a given value surrenders it to another, with- 
 out at the time of such transfer himself receiving an 
 actual equivalent, but instead thereof a promise, ex- 
 pressed or implied, to deliver a stated value at a future 
 
32 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 time. Credit is trust, confidence ; it is a reliance upon a 
 written or implied obligation on the part of another a 
 trust in man's honesty. 
 
 The very first element of credit would seem to be the 
 conviction that the person to whom a credit is extended 
 is and will be in a position to fulfil the promise on which 
 such credit is based, as no sane man would extend 
 credit to a person whom he knew to be incapable of meet- 
 ing the obligation incurred ; this would not be credit, but 
 benevolence or foolishness, as the case may be. 
 
 The importance of credit and its proper regulation in 
 financial matters can hardly be too strongly dwelt upon. 
 It is the corner-stone of all financial systems ; and no 
 matter how much money there is in a country, there can 
 never be enough to take the place of credit. Hence any 
 impairment of credit causes more disturbance in commerce 
 and finance than the locking up or taking out of circula- 
 tion of hundreds of millions of bullion or other values. 
 
 Credit is equal in amount to nearly 90 per cent, of the 
 aggregate of all marketable values, for the reason, speak- 
 ing broadly, that credit will be extended to that amount, 
 with the pledge of the values as security, and money is 
 only called upon to do what credit cannot. Money (coin) 
 is only equal in volume in the United States that is, 
 that portion of it in circulation to about 3 per cent, of 
 annual marketable values. The statements frequently 
 made to show the rapidity of the circulation of money, 
 the most common of which is that the annual clearings of 
 the clearing houses of the country aggregate about 
 $62,000,000,000, would seem to indicate that each dollar 
 (the amount in circulation being little more than one and 
 a half billions, one third of which is currency) had changed 
 hands about forty-five times ; but when it is remembered 
 that clearing houses are simply creations of banks them- 
 selves emporiums of credit for the purpose of facilitating 
 their methods of setting off credits against debits, and 
 
PRINCIPLES OF FINANCE. 33 
 
 debits against credits, it will be perceived that it does not 
 at all show the rapidity of the circulation of money, but 
 rather, as compared with credit, what an insignificant part 
 money plays in the business of the nation. The only 
 function money performs in the clearing-house business is 
 the settlement of balances, which average in New York 
 less than 3 per cent, of the clearings, and it is probable 
 that a ratio of one to twenty is maintained throughout 
 other business operations, as that is the relation money 
 bears to credit, and there is no good reason to believe 
 that money circulates any faster than does credit, 
 especially if we bear in mind what a large part of our 
 money (see Paper Money) is simply credit. 
 
 In commerce, money as an intermediate value is used 
 largely as the auxiliary of credit, or, to use a bookkeeping 
 term, " to make the petty cash disbursements," and to 
 make change between values ; and no matter how rapidly 
 it might be made to circulate, as its circulation to be of 
 most use must be largely at those seasons of the year when 
 practically the whole agricultural interests of a country are 
 debtors, and debtors to an amount greatly in excess of the 
 whole currency of the country, it is evident that then it 
 can only assist credit. 
 
 To illustrate the credit system of the country : 
 The planter or farmer obtains his supplies during the 
 growing of his crops from the factor, on credit, pledging 
 the crops as security. These supplies the factor has pur- 
 chased from various merchants, on credit, securing such 
 advances or credit by his paper (notes). The merchant 
 obtained the same from the wholesale dealer, on credit, 
 securing such credit by a transfer of the factor's notes. 
 The wholesale dealer bought the same from the producer 
 or manufacturer, on credit, either his own or his bank's, 
 depositing with the seller his paper, or that of others in 
 his possession, in each instance the credit being based 
 primarily on the crop to be produced by the farmer. 
 
34 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 When the crop is grown and about to be harvested, 
 then the large money centres advance the local banks, on 
 a rediscount of paper, the sums necessary to harvest such 
 crops, which sums the local banks advance to the farmers, 
 and the farmers pay to the laborers, who in turn pay it to 
 the local tradesmen, who reimburse the wholesaler, and 
 so on until it reaches the original holder of the commod- 
 ity which the laborer purchased, and for which he has 
 been paid in money ; but this is but a small item in the 
 general transaction. 
 
 Transportation companies now bring the crops to mar- 
 ket ; the factor gives the company his check, which it de- 
 posits in its bank, a large part of which is consumed, per- 
 haps, to take up advances made by the bank during the 
 summer months. The crop is sold by the factor, who 
 draws upon the purchaser; the factor deposits his draft to 
 his credit in his bank, and after deducting from the pro- 
 ceeds of the sale his advances, interest charges, insurance, 
 etc., remits the planter the balance to his credit, often in 
 a check. The factor gives the merchant his check, which 
 he in turn deposits, and draws his own against in favor of 
 the persons to whom he is indebted, and so on until the 
 persons who first extended the credit are repaid, and then 
 not in money, but in credits, or in the ownership of a 
 value, their credits when obtained being largely used to 
 enable them to purchase other values, which they again 
 transfer on credit. The laborers and small tradesmen 
 are practically the only persons paid in money. 
 
 Careful financiers and good business men rarely extend 
 credit secured by anything less than a real value of great- 
 er amount than the credit given, the exception to this rule 
 being in the case of corporations, whose continuance is a 
 matter of considerable certainty, and whose earnings are 
 capable of close estimate. The earning capacity of an 
 individual is not a proper basis for credit, for it may cease 
 at any moment. 
 
PRINCIPLES OF FINANCE. 35 
 
 Purchases of bonds are simply credits to corporations, 
 secured by their plant, franchises, and a first interest on 
 their net earnings. 
 
 Credit being, next to value itself, the most important 
 thing a person can possess, cannot be too carefully 
 guarded. Its worth is so well recognized that men are 
 anxious to purchase the credit of others whose credit is 
 widely known, and banks, corporations, and individuals 
 sell their credit to those whose credit is not so good or 
 generally recognized. In fact, the largest source of reve- 
 nue of many private bankers is a sale of their credit in 
 various forms, such as letters of credit and bills of ex- 
 change. 
 
 Interest. Interest is the charge made by the lender to 
 the borrower for the use or opportunity to use capital, 
 money, or credit, and is stated in terms of money. This 
 charge when paid at the time the loan is made is deducted 
 from the amount of the loan and is known technically as 
 " discount." The rate of either interest or discount 
 charged is called " per cent." The sum on which the 
 charge is made, the amount of the loan, is the " princi- 
 pal." 
 
 Interest is charged not only on loans but on debts 
 overdue, whether converted into the form of a loan by 
 the consent of the creditor to their payment at a future 
 date, or when, without such consent, a debt remains unpaid 
 after it is due. 
 
 Interest due on debts, in the absence of an agreement 
 expressed or implied by the custom of trade, is collectible 
 at the prescribed legal rate,, and no higher rate can be 
 collected. 
 
 The distinction between the current or market rate of 
 interest and the legal rate must be borne in mind. The 
 legal rate is an arbitrary one fixed by law, whereas the 
 market rate is governed by the conditions and principles 
 about to be explained. 
 
36 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 The market rate of interest is not necessarily governed 
 by the quantity of money available in a particular com- 
 munity, because interest is not only a charge for the use 
 of money, which bears a comparatively small ratio to 
 capital, but is the charge for the use of capital itself, as 
 well as credit, and capital and credit may be plentiful in 
 the same community in which money is scarce. For this- 
 reason the total amount of money per capita in a given 
 country is a very slight factor in determining the interest 
 rate. 
 
 The rate of interest or the price charged for the use of 
 capital or credit or money is governed by the earning 
 capacity of money, capital, or credit when employed not 
 in any one particular industry, but in all. Although it 
 must be borne in mind that the whole earning capacity of 
 capital, and in this relation when the word capital is used 
 it is meant to include capital, money, and credit, must be 
 greater than the rate of interest charged, otherwise there 
 would be no object in the borrower employing capital and 
 paying out to the lender the entire profit of its employ- 
 ment. Consequently the earning capacity not only of 
 capital but of man must be taken into consideration. 
 For instance, A, who by the employment of $100,000 
 could make a profit of $10,000, would doubtless be willing 
 to pay 5 per cent, for the use of that $100,000 if he were 
 content with $5000 in payment of his services in the em- 
 ployment of that capital ; but C, who could by its em- 
 ployment make a profit in his particular business of not 
 more than $5000, would certainly be unwilling to pay the 
 whole amount of the earnings of that capital plus his own 
 labor for its employment. And C's refusal to pay so 
 high a price for its use would tend to lessen the rate of 
 interest. 
 
 Where capital is plentiful and the wage of labor is 
 small, interest charges are low. Where capital is scarce 
 and the earning capacity of man great, interest charges 
 
PRINCIPLES OF FINANCE. 37 
 
 are high. The truth of this proposition is borne out by 
 the rates of interest prevailing in older countries and in 
 the newer countries, and even in different sections of our 
 own country ; on the Atlantic seaboard, especially in 
 the Northern and Eastern States, the market rate being 
 comparatively low, while in the Southern and Western 
 States it is high. 
 
 The rate of interest is further regulated by the risk 
 incurred, and the greater the risk necessarily the higher 
 the rate of interest. Competition is also an important 
 element in determining the rate, as is evidenced by the 
 fact that in communities where practically the whole 
 available capital is reposed in few hands the rate is higher, 
 because of their monopoly of capital ; while in communities 
 where that capital is held by many, all anxious to lend 
 and coming into competition with each other, it is neces- 
 sarily lower. In other words, the law of supply and de- 
 mand is here as potent as in regard to any commodity. 
 
 Another, if not one of the chief factors in determining 
 the rate of interest, is the cost of the transportation of 
 values, the transmission of money and credits, and the 
 ease and rapidity with which they can be made, and this 
 is certainly meant to include exchange between different 
 countries. The more highly perfected and instantaneous 
 communication between different countries, cities, and 
 parts of the same country becomes, the more uniform 
 must be the rate of interest. For under these conditions 
 of practically unrestricted movement, capital immediately 
 seeks the place where it can command the best price, and 
 this inflow necessarily tends to equalize that rate with the 
 rate prevailing elsewhere where the risks are proportion- 
 ately the same. 
 
 If the rate of exchange or the cost of the transfer of 
 money or credits is a factor in determining the rate of 
 interest, it is equally true that the rates of interest pre- 
 vailing in different places, when very disproportionate, 
 
38 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 causing a rapid transfer of credits or money, also affect 
 the rates of exchange. 
 
 In relation to the legal rate of interest, the principles 
 before stated apply with modified force on account of 
 governmental interference with their natural operation, 
 and while it is true that in many States there are no laws 
 prohibiting the collection of any agreed rate of interest 
 between borrower and lender, and that the legal rate is 
 usually fixed not to interfere with private contracts, but 
 to protect debtors against unfair exactions on the part of 
 their creditors, yet in other States even the collection of an 
 agreed rate of interest beyond the legal limit is prohibited, 
 and the lender exacting such an illegal rate pays the pen- 
 alty by the forfeiture of double the amount of his interest. 
 
 Banks, insurance companies, and other corporations 
 deriving their powers from Federal or State governments 
 are generally restricted by those governments as to the 
 rate they may charge. 
 
 But this is hardly the place to enter into a discussion 
 of the legal rate of interest prevailing in our different 
 States, the laws in regard to which as well as the pre- 
 scribed rates differing very widely. 
 
 (See Interest Rates of States, end of book.) 
 
 Exchange. Exchange is one of the most difficult 
 terms in finance to accurately and yet comprehensively 
 define, but in a general way it may be said to be that 
 operation by which, through the setting off of credit 
 against debit and debit against credit, the actual transfer 
 of so much coin, bullion, or currency is avoided. 
 
 Exchange is divided into Domestic Exchange, that be- 
 tween different portions of the same country, and Foreign 
 Exchange, that between a city of one country and a city 
 of some other country, the principles being exactly the 
 same in either case. 
 
 As an illustration of a transaction in simple foreign 
 exchange : 
 
PRINCIPLES OF FINANCE. 39 
 
 Suppose A in New York owes B in London $1000, and 
 C in London owes D in New York $1000, then there is 
 $1000 owing in London to New York and $1000 owing 
 in New York to London. Upon A in New York paying 
 to D in New York $1000, and C paying to B in London 
 $1000, A of New York has by this transfer paid his obli- 
 gation to B in London, and C in London has at the same 
 time paid his obligation to D in New York ; but A in 
 New York would have no means of knowing that C in 
 London owed D in New York a like sum, nor would C in 
 London know that A in New York was in debt to B in 
 London in a like amount. A in New York goes to a 
 dealer in exchange (a banker) and buys a bill of exchange 
 on London to pay his indebtedness to B. Meanwhile, C 
 in London buys a bill of exchange (for the purpose of 
 this example, from the same house, which has offices in 
 both cities), to pay his debt to D in New York. The 
 dealer in exchange, upon comparison, finds that his New 
 York house has to remit to his London house $1000, and 
 his London house to his New York house a like amount to 
 effect the payments for which the bills were purchased ; 
 but instead of doing this, he simply pays at his New York 
 house to D the money which A has paid in for his bill of 
 exchange to pay B, D having in the meantime received 
 from London a bill of exchange from C payable at the 
 New York house. The London branch, in like manner, 
 pays out to B, upon presentation of his bill of exchange 
 purchased by A in New York, the money paid in by C in 
 London to secure his exchange in favor of D in New York, 
 the whole transaction being accomplished without the 
 transmission of one dollar across the Atlantic. 
 
 The principle here laid down applies with equal force 
 whether the amount of the indebtedness of A to B is the 
 same as the indebtedness of C to D, the only difference 
 being that should the amount owing to London be greater 
 than that owing to New York, then New York deducts 
 
4<D PRINCIPLES AND PRACTICE OF FINANCE. 
 
 from the actual transmission of money, the entire amount 
 which London owes her, and remits the balance, and vice 
 versa in the case of New York. 
 
 No matter how many debtors in New York remit to 
 creditors in London, nor how many debtors in London 
 remit to creditors in New York, the amount of New 
 York's credits against London's debits are offset against 
 New York's debits to London's credits, and London's 
 credits against New York are offset against her debits, and 
 only the difference between London's debits less her 
 credits, the former of necessity being greater than the 
 latter if London is called upon to remit, is sent to New 
 York, and just the reverse in the case of New York that 
 is, the city whose debits are greater than her credits being 
 the one which must remit to the other. 
 
 As these debits and credits are constantly changing, 
 being at one time in favor of one city or country and at 
 another in favor of the other, and there being no specified 
 date of settlement of all houses or dealers in exchange, it 
 naturally follows that the actual transmission of money 
 merely to pay balances is resorted to with little regularity. 
 In fact, herein comes the element of premium and dis- 
 count of exchange, so termed ; it being always regulated 
 by the debtors' available supply of bullion, with which to 
 pay balances, the cost of the transportation of that bul- 
 lion from one place to the other, and by the rates of in- 
 terest prevailing in the two places. 
 
 As business men are constantly incurring obligations 
 due in the respective cities, as soon as exchange sells at a 
 discount in New York the New Yorkers buy in anticipa- 
 tion of their wants, and when exchange is at a discount 
 in London the Londoner buys for the same reason. This 
 tends to equalize and steady the price of exchange. Of 
 course, some men simply buy exchange as a speculation, 
 purchasing at a discount and holding it against the time 
 when it can be used at a premium. Nor is this an abso- 
 
PRINCIPLES OF FINANCE. 41 
 
 lute tying up of that amount of money, as bills of exchange 
 can be used as collateral. 
 
 Exchange between cities in the same country is gov- 
 erned by the same principles, and needs no further ex- 
 planation than to say that the forms of the bills are not 
 usually the same as those used in foreign exchange, often 
 being simply a cashier's check on his bank, payable at 
 some correspondent institution, or a letter introducing a 
 depositor to a correspondent and certifying to the amount 
 of his balance, drafts against which such correspondent 
 pays and charges against the writer of such letter. 
 
 While these are the principles upon which exchange is 
 based, the complexity of our relations is such that com- 
 mercial usage has so far outgrown these primitive princi- 
 ples as to almost entirely obscure them ; in fact, they are 
 rarely remembered, and to-day in the money centres a man 
 can buy a bill of exchange from dealers payable in almost 
 any city in the world, however remote, despite the ab- 
 sence of credits as offsets to such bill ; but if that city has 
 no commercial relations with the city of issue, or with 
 another city having relations with the first city, which is a 
 very rare thing, it is not in any sense a matter of exchange, 
 but simply the transmission of so much money, of which 
 the bill of exchange is simply a forerunner, the banker in 
 the city of presentation paying the same, and in due 
 course receiving the amount of the bill plus his charges 
 in coin or bullion. 
 
 This naturally leads to a discussion and explanation of 
 what for a better name might be called " complex ex- 
 change," as contradistinguished from simple exchange- 
 that is, an exchange which is not effected between city 
 and city, but bet\veen one place and another through the 
 intervention of one or more other places. Take, for in- 
 stance, New York, which effects most of her exchange on 
 Rio Janeiro through London, which is accomplished in 
 the following way : 
 
42 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 A in New York owing B in Rio Janeiro $1000, buys a 
 bill via London ; C in Rio Janeiro, owing D in New 
 York $100, buys a bill on New York via London ; while 
 E in Rio Janeiro, owing F $900 in London, buys a bill 
 on London ; and G in London, owing H in New York 
 $900, buys a bill on New York. Upon the London house 
 paying F in London $900, the Rio Janeiro house paying 
 B in Rio Janeiro $1000, the New York house paying to 
 D $100 and $900 to H, the debts of all these persons to 
 each other have been paid. In other words, Rio Janeiro 
 uses the $1000 to her credit in London, payable from 
 New York, in payment of her debt of $100 to New York 
 and $900 to London, while London uses the $1000 so 
 paid by Rio Janeiro in payment of Rio Janeiro's $100 
 debt to New York, which she has purchased, and her own 
 $900. 
 
 The same laws that govern simple or direct exchange 
 also apply to complex exchange, and need not be repeated, 
 except to say that our credits in London are applied 
 against our indebtedness to Rio Janeiro, and her debits to 
 London are settled by her claims against us. 
 
 Domestic exchange is figured in one currency, and is 
 consequently simpler than foreign exchange, which has to 
 be calculated in two currencies, that of the country of the 
 purchaser and that of the country of the purchasee, and 
 in the case of complex exchange in three currencies, first 
 the currency of the place of purchase, which must be 
 converted into the currency of the place where such ex- 
 change is payable. All foreign exchange is calculated on 
 a gold bullion basis, i. e., that an ounce or a part thereof 
 of gold of a given fineness possesses exactly the same 
 value in all parts of the world. 
 
 The relative value of the currency of each country to 
 such gold bullion must be first ascertained before such 
 conversion from one currency to another can be made, 
 and this is rendered doubly necessary from the fact that 
 
PRINCIPLES OF FINANCE. 43 
 
 the bullion value of coin is generally less than its face 
 value. Thus in remitting $1000 United States money by 
 means of exchange to Mexico, assuming the transaction 
 to be one in simple foreign exchange between this country 
 and Mexico, Mexico's currency being on a silver basis 
 and ours on a gold basis, it would be necessary first to 
 determine the relative value of the Mexican silver dollar 
 to our gold coin ; how many Mexican dollars are the 
 equivalent in value of a thousand dollars United States 
 money. This having been determined, the " par of ex- 
 change " between the two countries has been ascertained. 
 Next is calculated the exchange premium or discount, as 
 the case may be, existing in favor of the one or the other 
 country, which, in the case of a discount, would be sub- 
 tracted from the cost of such exchange, and in the case of 
 a premium added, and vice versa in the case of Mexico 
 remitting to the United States. Should, however, this 
 transaction be effected by way of London, it would be 
 necessary first, on the same gold bullion basis, to convert 
 $1000 United States money into pounds, shillings, and 
 pence, adding the premium or subtracting the discount, 
 then to convert the pounds, shillings, and pence into Mex- 
 ican money with the discount from London to Mexico 
 subtracted, or the premium added, the invariable rule 
 being that the purchaser receives the benefit of the dis- 
 count when the exchange is favorable to him, and pays 
 the premium when it is against him. 
 
 Owing to causes and conditions too numerous to detail, 
 the relative value of one currency to another is constantly 
 changing, and obviously it would result in great confusion 
 and wrong to allow this relative value to be fixed by a 
 few dealers in exchange. To avoid this confusion, lack 
 of uniformity, and possible wrong, as well as to protect 
 both the buyer and the purchaser, houses known as 
 "arbitrage houses," which are the principal banking 
 houses doing an international business, daily agree upon 
 
44 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 such relative values, and the values set by them are 
 accepted by both purchasers and sellers. 
 
 Foreign exchange is calculated and sold in the currency 
 of the country where purchased and paid in that of the 
 country in which it is payable. 
 
 The same rule applies in the case of all foreign ex- 
 change. It is calculated in the unit of value of the 
 country where purchased, and remitted in the unit of 
 value of the country where payable. In Germany it is 
 calculated in marks, in France and Antwerp in francs, in 
 Amsterdam in guilders. The relative value of the coins 
 of the principal commercial countries will be found in 
 table " Relative Values of Moneys." 
 
 The premium on, or discount off, foreign exchange is 
 not, as in the case of domestic exchange, stated in per 
 cent., but in an addition, in the case of a premium to, and a 
 subtraction, in the case of a discount from, the relative 
 value of the respective currencies, viz. : $4.86^ being the 
 par of sterling exchange, when exchange sells at $4.85 it is 
 at a discount, and in like manner when it sells at $4.88, it 
 is at a premium. 
 
 Selling Exchange. So far only the buying of ex- 
 change by persons wishing to remit in discharge of obliga- 
 tions has been treated of, but clearly if banks will 
 purchase or advance money on drafts, why should not 
 dealers in exchange purchase the claims of persons hold- 
 ing demands against others residing elsewhere, instead of 
 waiting for these persons to remit? They do, and this is 
 termed Selling Exchange. 
 
 The volume of business done in this way is probably 
 greater than that done in the buying of exchange, as com- 
 paratively few creditors now wait for their debtors to re- 
 mit, but instead, by the selling of their demands in the 
 shape of exchange, payable, as the case may be, on presenta- 
 tion, or at thirty, sixty, or ninety days, they realize the 
 amount owing by such debtor at once instead of having it 
 tied up in the shape of bills receivable. 
 
PRINCIPLES OF FINANCE. 45 
 
 Necessarily the same system of offsets of credits against 
 debits and debits against credits above explained in regard 
 to buying, applies in regard to selling, the only difference 
 being that the dealer purchasing the exchange occupies 
 the position of the person from whom it was purchased, 
 and presents the same through his London agents, when 
 due, for payment to the person against whom it is drawn. 
 
 Foreign exchange, payable at a future date, can only 
 be sold to a dealer at a discount, as such dealer must ob- 
 viously receive interest on the amount of the transaction 
 from the date of purchase to the date of payment, else he 
 is deprived of the use of that amount of money and the 
 same is used by another without any compensation ; he 
 has also incurred the risk of being unable to collect his 
 bill of exchange when presented for payment, which risk 
 ought not to be assumed without his receiving therefor a 
 premium sufficient, considering the financial standing of 
 the payee, to compensate him. It is true that he is usually 
 protected by the bills of lading of the goods against which 
 such exchange is drawn, and of which bills he becomes 
 the owner, but in the case of a thirty- or sixty-clays bill of 
 exchange this cannot apply, as the goods may have been 
 delivered and used before the exchange is presented for 
 payment. 
 
 Further, there must be taken into account the probable 
 condition of the exchange market at the time such bill 
 becomes due, which, owing to the general uniformity of 
 balances for or against certain countries at a given period 
 of the year, can generally be closely approximated. If at 
 the time of the maturity of such bill it is probable that 
 exchange against such country will be at a premium, then 
 clearly the amount of this probable premium must make 
 such exchange still more valuable and necessitate a still 
 further premium, but should it be probable that exchange 
 at said time will be at a discount, then the amount of such 
 discount should subtract that much from the price of 
 said bill. 
 
46 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Prime exchange is that issued by houses of known sol- 
 vency, whose bills are everywhere accepted, and the char- 
 acter of whose credit is beyond question. 
 
 A large business is done in the buying of bills of ex- 
 change payable at a future date, sometimes as long as 
 ninety days, in anticipation of obligations then falling 
 due, in consideration of the fact that exchange may be at 
 a discount at the time of purchase, and possibly will be at 
 a premium at the time the obligations become due ; and 
 the fact that most dealers are willing to allow the pur- 
 chaser as much interest for the money from the date of 
 purchase to that of the maturity of the bill as the money 
 commands in the market, avoids the loss incident to ty- 
 ing up that amount of money. 
 
 "Exchange," while originally and technically limited to 
 the definition given in the opening of this chapter, at the 
 present time in commercial parlance includes bills of ex- 
 change, transfers by cable, and, in fact, the transmission of 
 demands of all kinds by which money or an order for its 
 payment is made payable at a place other than the place 
 of issuance of such demand. 
 
 The prevalent impression thac a particular country at 
 more or less regular periods settles in gold the balance 
 due in favor of some other particular creditor country is 
 unwarranted by the very principles which govern ex- 
 change as well as by all the facts deducible from the sta- 
 tistics of the money world. The reason why such settle- 
 ments between country and country are not so effected is 
 seldom thoughtfully considered. The fact that the debits 
 and credits of the entire commerce of the world must 
 equal each other, and that it is impossible that either can 
 be in excess of the other, is generally lost sight of. It is 
 axiomatic to say that debits and credits must agree. The 
 entire amount of exports and imports of the world's com- 
 merce must be the same, from the fact that one country 
 must of necessity export what another country imports. 
 
PRINCIPLES OF FINANCE. 47 
 
 To maintain that the total amount of debits and credits 
 could vary, or that exports and imports could differ, would 
 be equivalent to saying that the debtor and creditor sides 
 of an accurately kept double-entry ledger would not be 
 the same. 
 
 In the settlement of the balance of trade between na- 
 tions that balance is rarely, if ever, settled between nation 
 and nation, but only the final balance on the gross ex- 
 ports and imports of the entire commerce of a country is 
 settled, and ultimately only by those countries which are 
 the final debtor countries paying such balance to those 
 countries which are the final creditor countries. The ex- 
 cess of our entire credits over our entire debits, taking 
 our country for the purpose of illustration, as a rule being 
 due from the three principal debtor nations of the world, 
 England, Germany, and France, must, in the absence of 
 some credit, equivalent to their own and assumed debit to 
 us, be remitted to us in gold. But, as a matter of fact, 
 this final credit to us, due from our excess of exports over 
 imports, is more than balanced by the large holdings of 
 interest-bearing American securities held by these coun- 
 tries, and which often more than offset our credit on ex- 
 ports over imports, and occasion, in addition, the expor- 
 tation of large amounts of gold from this country yearly, 
 to pay the balance which is finally in their favor. It is 
 not intended to assert that there may not be times when 
 one of these countries on the total of all transactions, in- 
 cluding holdings of American securities, is in this country's 
 debt, but to assert that, taking the three collectively, such 
 is not generally the case. 
 
 The shipment of bullion does not necessarily, nor even 
 generally, indicate the location of the balance of trade. 
 Because while the balance of trade may be largely in favor 
 of some young country, that balance may be, as explained 
 in the previous paragraph, more than offset by the pay- 
 ments of interest to countries commercially debtor and fi- 
 
48 PRINCIPLES AND PRACJ^ICE OF FINANCE. 
 
 nancially creditor, which excess of sums due for return of 
 securities must be remitted in bullion. It may be more 
 truly said that the shipment of bullion is an indication of 
 the excess of the entire credits of all countries against 
 the entire credits of one particular country ; but even this 
 is not always true, because bullion is largely purchased 
 simply as a commodity, the same as wheat or cotton, the 
 purchase usually being made when the relative value of 
 bullion to other commodities is less than usual, and being 
 sold when that relative value is greater. 
 
 The assumption is that the value of gold never changes. 
 This assumption is not absolutely accurate, because while 
 the prices of other commodities adjust themselves to the 
 value of gold, instead of the price of gold adjusting it- 
 self to the value of other commodities ; yet it is perfectly 
 clear that when the relative value of numerous other 
 commodities is greater relatively to the value of gold than 
 at another given time, then the buying power of gold is 
 reduced, and when the relative value of other commodi- 
 ties is less, as compared with the buying power of gold, 
 then the value of gold is greater. The real value of gold 
 is adjusted by the enormously greater value of other com- 
 modities ; and when the value of other commodities to 
 the value of gold is greater, then gold which has really 
 depreciated will be purchased for export, because at 
 that time certain commodities will buy more gold than 
 when the relative value of these commodities to gold is 
 less. 
 
 Price. Price is the money measure of a commodity, 
 service, or thing that is, the amount of money for which 
 it will exchange. Value is the relation a thing bears to 
 all other things, while price is the relation a particular 
 commodity, service, or thing bears to money, and money 
 only. In other words, price is the value of a thing ex- 
 pressed in money. The same principles which govern 
 value also in a somewhat modified degree fix price. 
 
PRINCIPLES OF FINANCE. 49 
 
 Before discussing the price of commodities and things, 
 it is necessary to make a few brief remarks with regard to 
 the price of labor, which is governed by much the same 
 factors that control the price of commodities, inasmuch 
 as the value of the bulk of labor is measured by its pro- 
 ductivity of commodities. There is, however, a class 
 engaged in the rendering of services of a professional and 
 personal character, whose price is fixed almost solely by 
 their reputation, skill, or ability, and the demand for their 
 services. The price of labor is fixed not only by supply 
 and demand, its productivity, and the interest charged 
 for capital, the wages received in a particular industry, 
 vocation, calling, or profession, but to a considerable 
 extent by the wages received in all. The effect of this is 
 to equalize the rewards of labor of a like character. 
 
 While the wage of labor is measured in time and 
 money, the real wage is the value received for the effort 
 expended, and at no time in the history of the world has 
 labor received such substantial rewards as it does at the 
 present day. The wages of workmen, the incomes of 
 business and professional men, are greater now than ever 
 before. The reason for this is not far to seek. The 
 forces of nature, through the application of machinery, 
 have become powerful auxiliaries to man, and much that 
 previously required the expenditure of manual force is 
 now accomplished by machinery. The result has been 
 to enormously increase the productivity of labor, and 
 thereby augment the fund out of which it is rewarded. As 
 this fund accumulates the laborer becomes more indepen- 
 dent, industry more profitable, and the demand for his 
 services, and the price, greater. 
 
 The statements in relation to price apply entirely to 
 wholesale prices, such as are found in current price-lists, 
 exchange quotations, etc., and have no application to the 
 prices of the retailer, which are governed by so many con- 
 ditions as to render the principles stated often inapplicable. 
 
50 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 The retail price of a particular article is often governed 
 largely by the reputation of the maker or producer, and 
 the ability of the purchaser to pay the price demanded, 
 rather than by well defined laws, hence the apparently 
 unreasonable variations in the retail prices of various 
 articles, such as clothing, hats, shoes, jewelry, etc. 
 
 Price presupposes, first, the possession by certain persons 
 of a surplus of some article, commodity, service, or thing, 
 beyond their needs, and which they desire to exchange ; 
 second, the existence of some generally accepted measure 
 of value, money ; without this exchangeable surplus, and 
 this measure of value, price is an impossibility. 
 
 Those products necessary to the support of life are of 
 the most certain and universally accepted value ; they are 
 the only things that man cannot do without, and in case 
 of necessity he sacrifices any other form of wealth to 
 procure food and clothing ; consequently gold, silver, 
 precious stones, works of art, and other commodities or 
 things on which a large amount of labor may be ex- 
 pended, and which form the principal means of preserving 
 the values of the surplus of agriculture and pastoral pro- 
 duction, depend largely for their value upon the existence 
 of a surplus of the necessities of life. 
 
 Until a people or country has reached a degree of pro- 
 gress in which they have accumulated a certain surplus of 
 food and clothing products, that is, necessaries of life, 
 there is but little use for preservative commodities, there- 
 fore among such peoples their relatively insignificant 
 value, value being dependent upon usefulness. As soon 
 as a substantial surplus has been accumulated, so soon do 
 preservative commodities possess an increased price ; 
 consequently in the older countries, where wealth and 
 values in the shape of improved real estate and many of 
 the comforts of life have been accumulated, rendering un- 
 necessary the expenditure of human energy for this part 
 of wealth, and allowing thereby a larger expenditure of 
 
PRINCIPLES OF FINANCE. 51 
 
 energy for production, the surplus of food and clothing 
 products would yearly become greater than in the 
 younger countries, where a larger part of labor must be 
 expended for the procuring of shelter, furniture, etc. 
 
 To minimize this yearly increasing surplus of necessa- 
 ries in older countries, recourse is had to diversity of 
 industry a larger number of individuals are employed in 
 the production of works of art and the manufacture of 
 articles of personal adornment and the rendering of 
 various services for which there is no need, and no surplus 
 to pay for, in more primitive communities. 
 
 The progress of mankind means the accumulation not 
 only of a surplus which may be expended for his mental 
 and moral elevation, but also a decrease in the amount of 
 labor necessary to make provision for the purely bodily 
 and material wants, hence the price of what may be 
 termed necessities of life must decrease in price. As the 
 surplus of the necessities of life, which are practically all 
 of a perishable nature, increases, the necessity of means 
 for converting that surplus likewise increases, and prices 
 of the commodities or things best adapted for this purpose 
 are necessarily enhanced, while prices must necessarily 
 continue to decrease for those products the surplus of 
 which is yearly growing greater, as long as this dispropor- 
 tionate increase between the different classes of com- 
 modities continues in its present ratio. This continued 
 disproportion however seems improbable in view of the 
 well known economic law that both capital and labor will 
 naturally seek the more and leave the less remunerative 
 fields. This rush of capital and labor to very profitable 
 enterprises soon creates a surplus of the thing or service 
 which previously commanded a high price on account of 
 its limited supply, and by the withdrawal of capital and 
 labor from the hitherto unprofitable employments, the 
 volume of those products is reduced, and the demand 
 correspondingly increased. This system of economic 
 
52 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 adjustment is going on constantly, and tends to the pres- 
 ervation of fair relative values and prices. 
 
 The following factors control the price of articles and 
 commodities : first, cost of production, which includes 
 labor, capital, and interest ; second, transportation and 
 distribution ; third, supply and demand ; fourth, compe- 
 tition and combination ; fifth, artificial restraints of 
 trade. 
 
 1. Cost of Production. The cost of production is 
 measured, first, by the amount of capital necessarily em- 
 ployed in the production of a given product. It makes 
 no difference whether the capital be owned by the pro- 
 ducer or is borrowed. If possessed, its usefulness is 
 measured by the rate of interest it could produce other- 
 wise invested. If borrowed, its cost is measured by the 
 charge made for its use. The wage of labor, taxes, 
 insurance, and compensation of employer are likewise 
 elements of cost. 
 
 The more perfect and general becomes the use of 
 machinery, the more certain and speedy the means of 
 transportation in other words, the greater becomes the 
 supply, or the less effort required to secure it, the lower 
 prices must go. The whole aim and trend of civiliza- 
 tion for the last two hundred years has been in this 
 direction. 
 
 2. Transportation or Procurability. Price is further 
 governed or modified by means of transportation and dis- 
 tribution, which practically tend to the procurability of 
 the article or commodity, and no matter how limited the 
 supply or great the demand, if a particular commodity or 
 thing is produced at a place in excess of the local demand 
 for it, and no means of transportation are provided for its 
 carriage to points of demand where the supply is inade- 
 quate, the price of sale is fixed at the place in which it 
 can be sold. There can be no question that corn and 
 wheat, prior to the opening of the Erie Canal or to the 
 
PRINCIPLES OF FINANCE. 53 
 
 establishment of our interoceanic lines of railway, pos- 
 sessed all the food values they now do, but in the absence 
 of means of transportation, being produced greatly in ex- 
 cess of the needs of their local consumers, the surplus was 
 a practical waste, owing to the prohibitory transportation 
 charges incident to the carriage of this surplus by the 
 primitive means afforded by wagons and pack-horses. 
 The cost of transportation must necessarily be deducted 
 from the price. Thus wheat sells at Omaha less its car- 
 rying charges to Chicago, in Chicago less its carrying 
 charges to New York, in New York less its carrying 
 charges to Liverpool. This statement is based on the 
 assumption that there is a surplus of wheat in Omaha 
 over Chicago, a surplus in Chicago over New York, and 
 a surplus in New York over Liverpool. If through ex- 
 cessive purchases Liverpool should acquire this surplus, 
 and some of the other cities a deficiency, then the condi- 
 tions would be altered and the price in the city suffering 
 from the deficiency would be plus that of the city enjoying 
 a surplus. In other words, the price of wheat in the place 
 where there is an insufficient supply is the price in the city 
 where there is a surplus, plus the carrying charges between 
 the two places. 
 
 The building of railways, the opening of canals, the 
 establishment of lines of ocean steamers, putting the 
 whole world in communication, and opening the markets 
 of the old world to the produce of the new, and the mar- 
 kets of the new to the manufactures of the old, have all 
 tended to increase the supply where needed of both food 
 and clothing products, and to reduce their price in the 
 markets of the world. 
 
 Distribution is a necessary part of the cost of transporta- 
 tion, in fact distribution itself is one element of trans- 
 portation ; consequently the charges of factors, merchants, 
 middlemen, brokers, insurance companies, and others, all 
 of whom render services incident to the transportation or 
 
54 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 distribution of commodities, become an inherent part of 
 their cost and an element in fixing the ultimate market 
 price. 
 
 3. Supply and Demand. These terms are so intimately 
 connected as to be practically inseparable. By supply is 
 meant only the available supply, and not the total mass 
 of a given product, a large part of which under certain 
 conditions may be unavailable ; thus, if some country 
 should have a surplus of wheat, and that surplus could 
 not be brought into the markets of the world, it would 
 not be available and would not affect the market price of 
 the available supply. By demand is meant the effective 
 demand ; that is, the demand of persons in a position to 
 give an exchangeable value for the value they desire to 
 possess. 
 
 Supply is the measure of quantity ; demand is the 
 measure of effective desire. Generally speaking, where 
 the supply is large the relative demand is reduced and 
 the price of the product is consequently lowered, but even 
 though the supply should be larger than formerly, should 
 the demand increase in like ratio the price is maintained ; 
 again, while ordinarily a decrease in supply would mean 
 an increase in price, this is only true where there is a cor- 
 responding increase in demand. It may, and often does, 
 happen that a decreased supply going hand in hand with 
 a decreased demand means a stationary or even falling 
 price. This is especially true of articles dependent for 
 their sale upon the taste or caprice of the purchasing 
 public, such as textile fabrics of particular patterns. The 
 desire to possess them having decreased, even though their 
 supply may have diminished in greater ratio, they become 
 practically unsalable or command but little price. 
 
 Low prices for food and clothing products show beyond 
 dispute that they are plentiful, and that it is desired to 
 preserve the value of their surplus production. Plenty is 
 surely cause for congratulation, perhaps not to the pro- 
 
PRINCIPLES OF FINANCE. 55 
 
 ducer of these commodities, who may be compelled to 
 take a low price for them, but if he will insist upon pro- 
 ducing what the world already has a full supply of, he has 
 only himself to blame for a waste of effort. 
 
 High prices for food and clothing are an infallible indica- 
 tion of scarcity, and show that there is but little surplus 
 to be converted into more permanent forms of value, and 
 while this condition may be cause for rejoicing to the 
 food and clothing producers, it is cause for apprehension 
 and discomfort to all others. 
 
 Where the price of a product is insufficient to pay the 
 producer a fair rate of interest on the capital invested and 
 a reasonable wage for his labor, it is evident that there is 
 either little demand for his product, or, what to him is 
 equally bad, an excessive supply ; because the rewards of 
 labor, whether they be to the employer or employee, tend 
 practically to the same level in all industries, of course 
 measured by the productivity, skill, dexterity, and rarity 
 of the labor employed. 
 
 4. Competition and Combination. As civilization ad- 
 vances and population becomes more dense, competition 
 increases owing to the larger number of producers. This 
 increased production necessarily decreases the price of the 
 product, and owing to the very large number of small 
 proprietors engaged in certain classes of industry, prin- 
 cipally food and clothing products, renders combination 
 between such producers limiting production practically 
 impossible. In many products competition has become 
 so fierce as to leave but little profit to either the producer 
 or the distributing agent. 
 
 Combination, which is the antithesis of competition, 
 when applied to articles and commodities is known as 
 trusts ; when designed to limit the supply and to increase 
 the wages of labor, it takes the form of trades unions 
 and other labor organizations. 
 
 When applied to commodities, combination or monopoly 
 
56 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 is generally practicable only in relation to articles requir- 
 ing for their production a large amount of capital in the 
 hands of a comparatively few corporations or individuals, 
 who may readily combine to limit the output of its differ- 
 ent members ; hence these trusts, monopolies, or combina- 
 tions are generally confined to manufactured articles, and 
 in this country are rendered doubly effective by the large 
 import duties imposed on many manufactured articles, 
 thereby giving a practical monopoly of the domestic 
 market to the home manufacturers ; but in the absence of 
 such import duties a combination to be effective would 
 have to embrace all the manufacturers of the world pro- 
 ducing that article. 
 
 Competition necessarily reduces prices ; combination 
 is designed to increase them. The law-makers of the 
 Federal Government and of the States have considered 
 combinations so inimical to the general welfare as to pass 
 most stringent laws against agreements or contracts in 
 restraint of trade, and to refuse to enforce them. 
 
 5. Artificial Restraints of Trade, by which is meant 
 interference either by governments or individuals with the 
 natural laws and conduct of trade, necessarily affect the 
 price of the article upon which that interference is exer- 
 cised. Governmental restraints, whether they consist of 
 the licenses which a city requires the vendors of various 
 kinds of merchandise to purchase, the internal revenue 
 taxes levied by the Federal Government, or the import 
 duties imposed by the same power, add to the price of 
 the article on which they are imposed, and this additional 
 price must be paid by each subsequent purchaser. In the 
 case of imported commodities on which there is an import 
 duty, the import price is the price of the country of ex- 
 port plus the duty. In some classes of manufactured 
 articles where the profit is great, it is sometimes the cus- 
 tom of merchants to make one price to their home buyers 
 and another to their foreign purchasers, in order to reach 
 
PRINCIPLES OF FINANCE. 57 
 
 a market from which the duty would exclude their goods. 
 Obviously, however, this reduced price for export goods 
 can enable goods to reach the desired market only where 
 the profit is large enough to admit of great reduction 
 from the home price and where the duty is comparatively 
 small. In the case of such staple commodities as food 
 products, and the great bulk of clothing products, espe- 
 cially the cheaper grades, if there is any difference between 
 the home and export price it is so slight as to amount to 
 practically nothing, and the cost to the importer is nearly 
 always the price prevailing in the country of export plus 
 import duties, transportation, and insurance. Sometimes 
 foreign merchants in order to dispose of their surplus or 
 old stock, will sell to foreign buyers at a much lower price 
 than to domestic, sooner than reduce the selling price of 
 their products in the home market. 
 
 Individual restraints of trade usually consist of the 
 purchasing by one or a number of men, of a quantity of 
 a given product largely in excess of their legitimate wants 
 or expectations of exchange. In common parlance this 
 is known as a " corner/' One or more men purchase the 
 available supply of a particular commodity and thereby 
 are able to demand whatever price they choose from 
 buyers. While this may effect a temporary rise in the 
 price of the product " cornered," it is impossible that it 
 can permanently affect either its value or its price, be- 
 cause its only worth to the possessors is an exchangeable 
 one, they possessing an amount largely in excess of their 
 own needs, and of necessity being compelled to soon dis- 
 pose of their holdings. 
 
 Effect of Standard of Value on Price. By many it is 
 contended that what they term the demonetization of 
 silver and the consequent making of gold the single 
 standard of value has led to a decrease in the price of 
 commodities and a consequent increase in the price of 
 gold. 
 
58 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 In order to sustain this contention it is necessary to 
 show that gold has not been practically the sole universal 
 standard of value for the last hundred years, and that the 
 alleged demonetization of silver had resulted not only in 
 the restriction of its legal-tender quality, but had likewise 
 deprived it of its value as a commodity, and had been the 
 sole cause of its relative decrease in value. This will 
 probably not be attempted. It would be further neces- 
 sary to prove that the available ratio of gold to the com- 
 merce of the world had not been maintained, or that the 
 demand for gold as a circulating medium had increased 
 out of proportion to its production, because as a standard 
 it simply bears an abstract relation to other commodities. 
 It could only as a measure of value itself increase in value 
 and the things measured by it decrease as it became the 
 preservative of value, not the measure of it. Again must 
 be considered the fact that even if the proportion of gold 
 to other commodities has not been maintained, this fact 
 has been more than offset by the various devices brought 
 into operation by governments, bankers, and financiers, 
 by means of which the representatives of gold in the 
 shape of paper money, credits, bills of exchange, etc., 
 have been greatly augmented and the use of the metal 
 itself as an actual medium of exchange has been mini- 
 mized. It would be further necessary to show that other 
 preservative values had decreased in amount and that a 
 greater burden and therefore a larger demand for gold 
 as a preservative commodity, which is its most restricted 
 use, had ensued. This in the face of the obvious accumu- 
 lation of wealth in other preservative forms it is impossi- 
 ble to prove. We may therefore conclude that whether 
 there be one or more standards of value (it is in this work 
 contended that there can be but one standard of value) 
 the relative value of commodities to each other is not 
 thereby changed. 
 
 In this relation it should be remembered that the tend- 
 
PRINCIPLES OF FINANCE. 59 
 
 ency of finance during the last century at least has been 
 toward the restricted circulation of metals as the media of 
 exchange, and in the direction of the storing of those 
 metals and the issuing against them of currency or credits 
 in excess of the bullion value of the metals, and the secur- 
 ing of the deficiency in amount between the market value 
 of the metal and the face value of the currency by the de- 
 posit of other credits, principally government, state, and 
 municipal obligations. In other words, these last-named 
 obligations have come to the assistance of the metals as 
 a basis for the media of exchange, and have tended to min- 
 imize the actual use of metals, whose money use in most 
 civilized countries is now principally as one of the bases 
 of currency. 
 
 While gold, in common with other preservative com- 
 modities, has increased in relative value to food and 
 clothing products, as the surplus of these products became 
 yearly greater, its increase has not been so great as that 
 of other preservative values. The price of government, 
 state, municipal, corporate, and individual credits has in- 
 creased in a much greater ratio, bonds bearing a rate of 
 interest which enabled their makers to dispose of them 
 at par fifty years ago would now sell at over 200. Capital 
 generally is so plentiful that nearly all states and countries 
 have reduced the legal rate of interest, and have been en- 
 abled repeatedly to fund their interest-bearing securities 
 in others bearing a lower rate. This increase is not con- 
 fined to securities and credits, but pertains to practically 
 every commodity or article by which value can be pre- 
 served. The obvious reason for this enhanced value of 
 preservative commodities, credits, and securities is the 
 enormously increased supply of the necessities of life, 
 owing largely to the rapid development of new areas and 
 the greatly reduced cost of production. 
 
PART II. 
 
 PRACTICE OF FINANCE. 
 
 r 
 
 CHAPTER I. 
 
 Money and Currency of the United States The New York Sub-Treasury. 
 
 Practice. In the succeeding articles the application of 
 the principles previously described, it is assumed, will be 
 readily determined by the reader, without the writer 
 pointing out the particular principles involved in each 
 kind of business discussed. 
 
 Money of the United States. The money of the 
 United States consists of gold and silver coin. Nickel 
 and copper are used for the minor subsidiary coin. 
 
 Gold, the coinage of which is unlimited, is legal tender 
 for a period of twenty years from the date of coinage to 
 any amount, when not reduced in weight more than one 
 half of one per cent. 
 
 The coins now minted are the quarter eagles ($2.50), 
 64!- grains; the half eagle ($5.00), 129 grains; the eagle 
 ($io),258 grains ; and the double eagle ($20), 5 16 grains, all 
 T 9 AV tns fi ne ' or nine-tenths pure gold and one-tenth 
 alloy. 
 
 Silver. The coinage of this metal is now practically 
 confined to minor coins, and the purchase of silver bullion 
 since the repeal in 1893 of the purchasing clause of the 
 Sherman Act has ceased. 
 
 60 
 
MONEY OF THE UNITED STATES. 6 1 
 
 Silver in dollar pieces of full weight is legal tender for all 
 purposes and to any amount in the absence of a contract 
 to the contrary. The smaller silver coins are only legal 
 tender to the amount of ten dollars. 
 
 Coins of the following nominal value, ^fffyths fine, are 
 now outstanding: Dollar, value $1.00, weight 4I2J- 
 grains; half dollar, $0.50, weight 192-^ grains; quarter, 
 $0.25, weight 96 T 4 Q 5 Tr grains ; and dime, $0.10, weight 38- 
 T 5 o 8 o grains. 
 
 At various times other silver coins have been issued ; 
 thus the Trade Dollar, weighing 420 grains, and by impli- 
 cation a legal tender to the amount of $5.00, coined under 
 the Act of 1873, circulated for about five years, when 
 its coinage was discontinued, and provision made for 
 its redemption at its face value, and for recoinage; 
 the twenty-cent piece, coined from 1873 to 1878 ; the Co- 
 lumbian half-dollar to the amount of $2,500,000, and the 
 Columbian quarter-dollar to the amount of $10,000, is- 
 sued in 1892. Three-cent pieces and a half-dime were 
 also coined. 
 
 It will be observed that while about $423,000,000 silver 
 dollars have been coined, that less than $54,000,000 were 
 in circulation and over $369,000,000 on deposit in the 
 United States Treasury on April I, 1895. The reason 
 for this is that the silver coins being too bulky and heavy 
 for extensive use in large amounts, it became necessary 
 for the government to receive them on deposit and to 
 issue in their place silver certificates. 
 
 Nickel and Copper. These metals are used entirely for 
 minor coins which are only legal tender to the amount of 
 25 cents and which are redeemable by the United States 
 in lawful money in sums of not less than twenty dollars. 
 While at various times half-cents of copper, nickel cents, 
 bronze cents, and two- and three-cent pieces of nickel have 
 been coined ; at present only the copper cent, weight 48 
 grains, and the five-cent piece nickel, weight 77 T W grains, 
 
62 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 are coined. Some of the other coins, however, are still 
 occasionally seen. 
 
 Only the one-cent piece (copper) and five-cent piece 
 (nickel) are now coined. 
 
 Currency of the United States. In addition to the 
 gold and silver which are legal tender as before stated, a 
 large part of the country's currency is also legal tender, 
 and that fact will be indicated in speaking of the particu- 
 lar notes. 
 
 As previously explained, the currency of the country, 
 excepting gold and silver certificates, is secured by the 
 government's credit and its metal reserve. Of course the 
 metal on deposit with the government against which cer- 
 tificates have been issued, is held exclusively for the re- 
 demption of those certificates and is not applicable to any 
 other purpose. The national bank notes are secured by 
 the pledge of the government strengthened by the lawful 
 money reserve required to be kept by the banks of issue 
 and by the United States bonds and the 5 % redemption 
 fund deposited by such banks with the Treasurer of the 
 United States to insure their redemption. 
 
 United States Notes or "Greenbacks" These notes consti- 
 tute the balance of the unredeemed forced paper currency 
 issued during the late Civil War, of which a fixed amount, 
 $346,681,006, is outstanding. They are legal tender for 
 all debts, public and private, except duties on imports 
 and interest on the public debt, but being redeemable 
 upon demand in coin, the latter limitation of their legal- 
 tender quality is of little effect ; in fact, by a regulation 
 of the Secretary of the Treasury they are received in 
 payment of customs and other duties. These notes when 
 received by the government may be re-issued and of course 
 constitute a constant claim upon the government's lawful 
 money. 
 
 United States Treasury Notes. Under the Act of 1890, 
 commonly known as the Sherman bill, these notes were 
 
MONEY OF THE UNITED STATES. 63 
 
 issued in payment of purchases of silver, and are legal 
 tender for all debts, public and private, except where 
 otherwise stipulated in the contract between the parties. 
 They are redeemable in gold or silver coin at the discre- 
 tion of the Secretary of the Treasury. In order to main- 
 tain a nominal parity of silver and gold, it has been found 
 necessary during the last few years to redeem these notes 
 when demanded by the holder in gold. There are now 
 outstanding $155,000,000 of United States Treasury notes. 
 
 Gold Certificates are issued in denominations of not less 
 than $20 by the Secretary of the Treasury against de- 
 posits of gold coin, which coin shall be retained in the 
 Treasury exclusively for their redemption upon demand. 
 Gold certificates are receivable for customs, taxes, and all 
 public dues, although not legal tender. 
 
 Silver Certificates, in $i, $2, $5, and $10, and higher de- 
 nominations, are issued against standard silver dollars 
 deposited in the Treasury. They are not legal tender, 
 but are receivable for public dues. As explained in the 
 remarks on silver, these certificates circulate largely in 
 place of the coin and form a large proportion of our 
 currency. 
 
 Currency Certificates (not legal tender) are issued by 
 the United States in denominations of $5000 and up- 
 wards upon deposits of currency with the United States 
 Treasury. 
 
 National Bank Notes are issued by the Comptroller of 
 the Currency to national banks upon deposit by them of 
 United States bonds with the Treasurer of the United 
 States. The conditions of the issue of these notes and the 
 security by which they are protected are so fully stated 
 in the article on National Banks as to make any repetition 
 of it here superfluous. 
 
 The following table contains a statement of the kinds 
 and amounts of money of the United States and the 
 banks of issue on April I, 1895 : 
 
6 4 
 
 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Kinds. 
 
 Total. 
 
 In Treasury. 
 
 In Circulation. 
 
 Gold . . . 
 
 $^67 ^Q2 4l6 
 
 $88 098,517 
 
 $470 403 800 
 
 Silver dollars * 
 
 422,927,039 
 
 360,009,182 
 
 53,917,857 
 
 Subsidiary silver, cop- 
 per, and nickel. . . . 
 
 76,450,557 
 
 346 681 016 
 
 i6,577,5H 
 80 74^ 2^7 
 
 59,873,046 
 2^6 Q^ 7^Q 
 
 U. S. Treasury notes 
 National bank notes. 
 
 150,330,089 
 207,541,211 
 
 28,872,489 
 4,449,893 
 
 I2I,457,6OO 
 203,091,318 
 
 
 $1,771,522,328 
 
 $596,752,849 
 
 $1,174,769,479 
 
 Besides the above, there was gold bullion to the amount 
 f SS^S^/jQ/Q* an d silver bullion of the nominal value of 
 $124,673,187 in the Treasury on April i, 1895. 
 
 Gold certificates, silver certificates, and currency certifi- 
 cates are not included in the above table, for the obvious 
 reason that they are only issued against metal or currency 
 as previously explained, and of course constitute no addi- 
 tion to the lawful money supply. 
 
 The amount of silver and gold certificates in circulation, 
 however, while it constitutes a demand claim upon the 
 government's metal holdings against which these certifi- 
 cates are issued, increases the circulating medium. 
 
 NEW YORK SUB-TREASURY. 
 
 The Sub-Treasury, situated at the corner of Wall and 
 Nassau Streets, which bound it on the south and west, 
 while Pine Street is on the north and the Assay Office a 
 part of the Sub-Treasury, is on the east, occupies the site 
 of the old City Hall of New York, which, at a later period, 
 was known as " Federal Hall." Here Washington was in- 
 augurated as the first President of the United States of 
 America, and took the oath of office on the spot now 
 
 1 The currency is augmented by the issue of $331,121,504 of silver cer- 
 tificates of various denominations issued against silver dollars. $7,374,748 
 of these certificates were in the Treasury, and $323,746,756 in circulation 
 on April i, 1895. 
 
NEW YORK: SUB-TREASURY. 65 
 
 marked by the imposing bronze statue, of which J. Q. A. 
 Ward is the sculptor. 
 
 This building is conspicuous among the loftier buildings 
 surrounding it, particularly for its pure architecture and 
 its adaptability for its present use. Its solid and substan- 
 tial form, its doors, guarded with steel gratings, its mas- 
 sive safes, immense vaults, and its uniformed guards 
 and attendant policemen, as well as the fire-proof charac- 
 ter of the building, suggest it as a proper place for the 
 .safe storing of the millions of gold and silver which are 
 .always within its walls. From the time of its completion 
 in 1842, down to 1862, it was used as a Custom House, 
 since which time it has been devoted to its present use. 
 
 In the basement are the vaults where the gold and sil- 
 ver, after being received through the Pine Street entrance, 
 are stored. Besides the vaults in the basement, there are 
 large safes on the main floor, in which a lesser amount of 
 silver and gold is kept. 
 
 The main entrance to the Sub-Treasury on Wall Street 
 leads to a large and well lighted rotunda, surmounted by 
 a beautiful dome. The office of the Assistant U. S. 
 Treasurer is on the left of the main entrance. The 
 coin division is in the Pine Street end of the building. 
 On one side of the hall is the division where the larger 
 denominations of coin are received and paid out, while 
 across the hall is the minor-coin division. The upper 
 floors are devoted to the accounting offices and files. 
 
 This Sub-Treasury is only second in importance to the 
 United States Treasury in Washington in the amount of 
 business transacted, which exceeds the aggregate of all 
 the other sub-treasuries in the country, two thirds of the 
 government revenues and disbursements being here re- 
 ceived and disbursed ; due principally to the fact that it 
 only costs about $1.01 per million to handle money in 
 this office, whereas the cost of handling in the other sub- 
 treasuries averages $2.47 a million. 
 
 
 
66 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 The average daily balance of cash (by which is meant 
 Treasury certificates, gold certificates, silver certificates, 
 National Bank Notes, greenbacks, gold and silver bull- 
 ion, gold and silver coin, subsidiary coins of copper and 
 nickel) is very difficult to state with any exactness, inas- 
 much as it varies daily not in thousands of dollars or 
 hundreds of thousands or even millions, but often in tens of 
 millions. Within the last year ending December, 1894, 
 the average daily balance has been about $110,000,000. 
 
 The receipts consist mainly of duties received at the 
 Custom House, which are daily paid in, internal-revenue 
 taxes, deposits of postmasters, remittances from banks 
 acting as national depositories, and deposits of banks or 
 individuals throughout the country of bullion. Here gold 
 certificates payable in coin or in bullion, all forms of paper 
 money, save silver certificates, are redeemed in coin upon 
 presentation. 
 
 Silver and gold coin and bullion in large amounts are 
 deposited by banks and private individuals on receipt. 
 These deposits form no part of the real available assets 
 of the Sub-Treasury, which, for the time being, is simply 
 used as a storehouse for their safekeeping. 
 
 The principal payments and disbursements are those 
 made to the disbursing officers of the army and navy, 
 against which payments deposits have been previously 
 made from the main Treasury in Washington. Other dis- 
 bursements are the regular Treasury payments on appro- 
 priations for public buildings, improvements, the construc- 
 tion of public works, and the payment of pensions, about 
 $90,000,000 being paid out annually by this Sub-Treasury 
 for this account alone. In addition to these disbursements 
 the interest charges on government bonds falling due are 
 here paid to the holders. 
 
 Several times when its financial condition warranted, the 
 government has, in order to relieve the stringency of the 
 money market, anticipated the payment of its bonds, the 
 
NEW YORK SUB-TREASURY. f 
 
 necessary disbursements for which were made principally 
 through this Sub-Treasury. 
 
 The Sub-Treasury is a member by courtesy of " The 
 New York Clearing-House Association," as it has daily 
 to pay large balances to the different banks, and it 
 thereby saves itself and them the trouble of making 
 payments to each, instead paying the amount due all 
 to the Clearing House, which distributes it. 
 
 The Assay Office, immediately to the right and adjoin- 
 ing the Sub-Treasury, of which it forms a necessary part, 
 is interesting principally as the storehouse of the Sub- 
 Treasury and from the fact that millions of coin and 
 bullion are here stored. A comparatively small part of 
 the gold and silver here in store is in the shape of coin, 
 that being generally kept at the Sub-Treasury. But here 
 may be seen bricks, as they are termed, of gold bullion, 
 little larger than a watch charm, square in shape, and 
 worth about $130, according to the fineness of the metal, 
 to larger bricks worth $6000. 
 
 Bullion is received in this office through the Sub-Treas- 
 ury from all parts of the republic, and requisitions are 
 made by the various mints of the country on it for such 
 bullion as they need for coinage. 
 
CHAPTER II. 
 
 Bapics National Bank Act. 
 
 THE functioiaryof a 'bank Is to issue, receive on de- 
 
 j f ->/ 
 
 posit, and loan money, to economize its use, and to re- 
 ceive, extend, and facilitate the interchange of credits ; 
 and to banks is largely due the extension and the develop- 
 ment of the system of domestic and foreign exchange, 
 which is an extension of the system of banking itself. 
 
 To appreciate fully the extent of the exchanges effected 
 by banks, we must bear in mind that while the active cur- 
 rency of our country is about $1,600,000,000 the total 
 annual clearances of the Clearing Houses of the country 
 are $62,000,000,000. 
 
 These associations are formed by banks for the pur- 
 pose of avoiding actual payment, in money, of their obli- 
 gations to each other (see Clearing House). Nor does 
 this amount include transfers between depositors of the 
 same banks effected on the books of those banks. 
 
 Banks are divided into six different kinds, the first and 
 most important being those organized under the National 
 Banking Act of 1863, and the amendments which have 
 from time to time been made thereto, and called National 
 Banks. Trust Companies which are organized under the 
 laws of the various States in which they are located, State 
 banks, savings banks, National Gold Banks, and private 
 banks. 
 
 The present national banking system came into exist- 
 ence under the Act of 1863 ; this Act, however, was re- 
 
BANKS. 69 
 
 pealed and superseded by that of 1864, previous to which 
 the banks of issue were organized under the laws of the 
 different States in which they were located. These laws 
 were not uniform, some being far more stringent than 
 others. The banking laws of some States, however, were 
 almost models of their kind, and provided ample security 
 for the protection of the holders of the bank notes as well 
 as of the depositors. 
 
 The banking laws of several of the States furnish excel- 
 lent object-lessons, in the difference between sound princi- 
 ples and their application to finance, and dangerous ex- 
 periments in the attempt to create money out of nothing, 
 or, at most, out of values insufficient to secure the face 
 value of the paper money issued against it, and which 
 value could not be readily converted into good money. 
 
 In considering the question of banking laws, the natural 
 and political conditions of a country must always be taken 
 into consideration, and it is not fair to assume, because 
 at a certain stage of a country's development a law 
 has been unsuccessful, at a later period, when the con- 
 ditions have been entirely changed, the result would 
 be the same. Unquestionably, if the present national 
 banking system had been tried in the earlier days of our 
 republic, or, in fact, at any period sooner than it was, it 
 must have met with nearly the same result as attended 
 State legislation, or at best have been but little more suc- 
 cessful than the average. It would, undoubtedly, how- 
 ever, have secured uniformity in the price of circulating 
 notes that is, the notes of every bank would be of the 
 same value as that of every other, which is something un- 
 attainable under State laws. 
 
 The National Bank Act provides for the incorporation 
 of National Banks, and prescribes that such banks shall 
 include as a part of their title the word " National," and 
 prohibits all other banks from using the word " National " 
 as a part of their name. Under this law are also organized 
 
70 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 and operated, principally on the Pacific Coast, what are 
 termed " National Gold Banks," In the District of Co- 
 lumbia there is a National Savings Bank, authorized by 
 this act. State banks are organized under the laws of the 
 States in which they are located. Trust companies are 
 also formed under the State laws. 
 
 Savings banks are organized under the laws of the vari- 
 ous States in which they are located, and are subject to 
 many restrictions in regard to the character of their in- 
 vestments and of the collateral on which they may loan, 
 also the proportion of currency to deposits which must be 
 kept on hand, and other matters which will be more fully 
 explained under " Savings Banks." 
 
 Private banks and bankers, i.e., one or more individuals 
 engaged in the business of banking but not incorporated 
 as a company, are subject to State supervision, the same 
 as State banks, only when they issue circulating notes, 
 which they are permitted to do under the laws of New 
 York, on the same conditions imposed upon State banks, 
 but which they have found unprofitable on account of 
 the Federal tax of ten per cent, on the issue of all but 
 national banks. 
 
 In order to convey a clear idea of the powers of, and 
 the differences between the several kinds of banks, it has 
 been found necessary to give a synopsis of the laws under 
 which they exist, and to which they are amenable. 
 
 NATIONAL BANKS. 
 
 The National Banking Act of the United States was 
 first passed in the year 1863, repealed and a new act sub- 
 stituted in 1864, which has been amended from time to 
 time since. Below is the act as it at present stands. 
 
 To thoroughly establish the national banking system, it 
 became necessary for the Federal Government to impose 
 a tax of ten per cent, upon the circulating notes of all 
 other than national banks. By many, this tax is consid- 
 
NATIONAL BANKS. fl 
 
 ered if not unconstitutional, an abuse of the Federal 
 taxing power, but had the desired effect of making the 
 " National " the prevailing banking system of the country. 
 
 Condensation National Bank Act. The first provision 
 of the national banking act as now in force provides for 
 the establishment of the Bureau of the Comptroller of the 
 Currency, to whom all matters relating to national banks 
 are referred, with power to grant certificates to such banks 
 to commence business, on being convinced that the condi- 
 tions of the act are complied with, or in his discretion to 
 withhold such certificates ; and through bank examiners 
 to make examinations whenever he may deem it necessary. 
 
 Organization and Powers. The first provision of the 
 law proper is in regard to the organization and powers of 
 national banks, and prescribes that not less than five 
 natural persons and by natural persons is meant individ- 
 uals and not corporations, executors, administrators, etc. 
 may associate themselves together to organize a 
 national bank. 
 
 They must make an organization certificate specifying 
 the object of the formation of such association, and this 
 certificate, which must be properly signed and forwarded 
 to the Comptroller of the Currency, shall state : first, the 
 name of such association ; second, the town or city and 
 State where its operations are to be conducted ; the 
 amount of capital stock ; the number of shares into 
 which it is to be divided ; the names and places of resi- 
 dence of the shareholders, and the number of shares, held 
 by each of them. It must be acknowledged before a judge 
 of some court of record or a notary public, whose seal 
 must be attached thereto. 
 
 From the date of filing the articles of association, after 
 approval of their application by the Comptroller of the 
 Currency, the associates become a body corporate, and as 
 such are vested with the power to use a corporate seal and 
 to have for twenty years the use and enjoyment of the 
 
72 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 privileges of this act, subject to its restrictions, limitations, 
 and obligations, although this incorporation may be 
 sooner dissolved, according to the provisions of its articles 
 of association, by the vote, in value, of two thirds of the 
 shareholders. The franchise may be forfeited through 
 violation of the law. 
 
 It shall have power to make contracts. 
 
 Such association may sue or be sued in the same 
 manner as natural persons; can elect or appoint direc- 
 tors, and such directors may appoint or elect a president, 
 vice-president, cashier, and other officers necessary to 
 carry on its business, and may dismiss these and appoint 
 others to fill their places. 
 
 Its Board of Directors may adopt by-laws not incon- 
 sistent with law. Through its Board of Directors and 
 officers it may exercise such powers as shall be necessary 
 to carry on the business of banking, in its various forms. 
 
 May issue circulating notes as is further on fully stated, 
 and may exercise such incidental powers as shall be 
 necessary to carry on the business of banking: by dis- 
 counting and negotiating promissory notes, drafts, bills of 
 exchange, and other evidences of debt ; by receiving de- 
 posits ; by buying and selling exchange, coin, and bul- 
 lion ; by loaning money on personal security ; and by 
 obtaining, issuing, and circulating notes according to the 
 , provisions of this title. 
 
 May purchase, hold, and convey real estate, but only as 
 much as shall be necessary for its immediate accommodation 
 in the transaction of its business, and such as shall be 
 mortgaged or conveyed to it in good faith as security for 
 or satisfaction of debts previously contracted, and it may 
 hold for the space of five years the possession of real 
 estate under mortgage or the title and possession of such 
 real estate as may be purchased to secure a previously in- 
 curred debt, at the expiration of which time such real 
 estate must be sold. 
 
NATIONAL BANKS. 73 
 
 No national bank may be organized having a capital of 
 less than $50,000, in a town whose population is less than 
 six thousand inhabitants ; $100,000 in a city of less than 
 fifty thousand ; or $200,000 in a city of more than fifty 
 thousand inhabitants. 
 
 Its capital stock shall be divided into shares of one hun- 
 dred dollars each, and be deemed personal property, 
 transferable on its books as prescribed in the by-laws or 
 articles of association ; a person becoming a shareholder 
 by transfer having the rights and incurring the obliga- 
 tions of the original shareholder. 
 
 At least fifty per cent, of the capital stock of such asso- 
 ciation shall be paid in before it is authorized to commence 
 business, and the remainder to be paid in equal monthly 
 instalments of ten per cent. each. 
 
 The first payment of fifty per cent, and each subsequent 
 payment must be certified by the President or Cashier of 
 such association to the Comptroller of the Currency. 
 
 Upon the failure of a shareholder to pay any instalment 
 on the stock subscribed to by him, such association may 
 sell the stock of such delinquent shareholder at public 
 auction, after three weeks' public notice thereof published 
 in a newspaper of general circulation in the city or county 
 where the association is located, or in the city or county 
 nearest the location of such association, to the person 
 paying the highest price therefor, which price shall not 
 be less than the amount then due, together with the ex- 
 penses of advertising and sale. In case of failure to sell, 
 the amount previously paid by such shareholder shall be 
 forfeited to the association, and the stock shall again, 
 within six months after due notice as above provided, be 
 offered for sale, when, if not then sold, it may be can- 
 celled. 
 
 Upon the certificate of payment of the fifty per cent, 
 of the capital stock being sent to the Comptroller, he may 
 make such examination as he thinks necessary to deter- 
 
74 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 mine whether such association is entitled to commence 
 business, and if such examination proves it is, he must 
 then issue such certificate ; but if such examination proves 
 unsatisfactory, he may withold the same. Such associa- 
 tion shall cause the certificate so issued by the Comptroller 
 to be published, in the manner before stated, for at least 
 sixty days. 
 
 Before any bank is permitted to begin business, how- 
 ever, it is required to transfer and deliver to the Treasurer 
 of the United States, United States registered interest- 
 bearing bonds, to an amount of not less than thirty thou- 
 sand dollars and not less than one third of the capital 
 stock of such bank, except in the case of banks having a 
 capital of one hundred and fifty thousand dollars or less, 
 which shall be only required to transfer United States 
 bonds to the extent of one fourth of their capital. Such 
 bonds shall be received by the Treasurer on deposit, and 
 shall be kept safely in his office until otherwise disposed 
 of under the provisions of this act. 
 
 All transfers of bonds made by any bank to the Treas- 
 urer under this act are made in trust for the association, 
 and a memorandum to that effect should be written or 
 printed on each bond and signed by the Cashier or some 
 other officer of the bank, for which bonds the Comptroller 
 or a clerk will issue a receipt, stating that the bond is 
 held in trust for the bank and as security for the redemp- 
 tion and payment of any circulating notes that have been 
 or may be delivered to such bank. No assignment or 
 transfer of any such bond by the Treasurer shall be 
 deemed valid unless countersigned by the Comptroller, 
 who shall keep in his office a book in which shall be en- 
 tered, immediately upon his counter-signing it, every trans- 
 fer or assignment by the Treasurer of any bonds belong- 
 ing to a national bank, which entry shall state the name 
 of the bank from whose account the transfer is made, the 
 name of the party to whom made, and the par value of 
 
NATIONAL BANKS. 75 
 
 the bonds transferred ; notice of which transfer shall be 
 immediately given to the bank by the Comptroller. 
 
 The Comptroller is given access to the books of the 
 Treasurer of the United States, for the purpose of ascer- 
 taining the correctness of any such transfer or assignment, 
 and also to the bonds to ascertain their amount and con- 
 dition. Like access is given the Treasurer to the books 
 of the Comptroller for the same purpose. 
 
 Each bank is required at least once a year, through 
 some officer or representative, to compare the bonds 
 pledged by it, with the books of the Comptroller, and if 
 found correct to execute to the Treasurer a certificate 
 setting forth the different kinds and the amounts thereof, 
 and that the same are in the possession and custody of 
 the Treasurer, a duplicate of which, signed by the Treas- 
 urer, shall be retained by the bank. 
 
 The bonds transferred to and deposited with the 
 Treasurer of the United States by any bank, for the 
 security of its circulating notes, shall be held exclusively 
 for that purpose, until such notes are redeemed. The 
 Comptroller of the Currency shall give to any such bank 
 powers of attorney to receive and appropriate to its own 
 use the interest on the bonds which it has so transferred 
 to the Treasurer ; but such powers shall become inopera- 
 tive whenever such association fails to redeem its circulat- 
 ing notes. Whenever the market or cash value of any 
 bonds thus deposited with the Treasurer is reduced below 
 the amount of the circulation issued for the same, the 
 Comptroller may demand and receive the amount of such 
 depreciation in other United States bonds at cash value, 
 or in money, from the association, to be deposited with 
 the Treasurer as long as such depreciation continues. 
 And the Comptroller, upon the terms prescribed by the 
 Secretary of the Treasury, may permit an exchange to be 
 made of any of the bonds deposited with the Treasurer 
 by any association for other bonds of the United States 
 
76 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 authorized to be received as security for circulating notes, 
 if he is of opinion that such an exchange can be made 
 without prejudice to the United States ; and he may 
 direct the return of any bonds to the bank which trans- 
 ferred the same, in sums of not less than one thousand 
 dollars, upon the surrender to him and the cancellation of 
 a proportionate amount of such circulating notes. 
 
 The association making a deposit of bonds as herein 
 provided shall be entitled to receive from the Comptroller 
 of the Currency circulating notes of different denomina- 
 tions, in blank, registered and countersigned as provided 
 by law, equal in amount to ninety per centum of the cur- 
 rent market value, not exceeding par, of the United States 
 bonds so transferred and delivered. 
 
 " In order to furnish suitable notes for circulation, the Comp- 
 troller of the Currency shall, under the direction of the Secretary 
 of the Treasury, cause plates and dies to be engraved, in -the best 
 manner to guard against counterfeiting and fraudulent altera- 
 tions, and shall have printed therefrom, and numbered, such 
 quantity of circulating notes, in blank, of the denominations 
 of one dollar, two dollars, three dollars, five dollars, ten dol- 
 lars, twenty dollars, fifty dollars, one hundred dollars, five hun- 
 dred dollars, and one thousand dollars, as may be required to 
 supply the associations entitled to receive the same. Such 
 notes shall express upon their face that they are secured by 
 United States bonds, deposited with the Treasurer of the 
 United States, by the written or engraved signatures of the 
 Treasurer and Register, and by the imprint of the seal of the 
 Treasury ; and shall also express upon their face the promise 
 of the association receiving the same to pay on demand, at- 
 tested by the signatures of the president or vice-president and 
 cashier ; and shall bear such devices and such other state- 
 ments, and shall be in such form, as the Secretary of the 
 Treasury shall, by regulation, direct." 
 
 The expenses of the issuance of such notes shall be 
 paid from the taxes assessed on the circulation of the 
 banks to which they are issued. 
 
NATIONAL BANKS. 77 
 
 The Comptroller of the Currency shall cause to be ex- 
 amined each year, the plates, dies, butt-pieces (bed-pieces), 
 and other material from which the national-bank circula- 
 tion is printed, and file in his office annually a correct list 
 of the same. 
 
 Such material as shall have been used in the printing 
 of the notes of associations which are in liquidation, or 
 have closed business, shall be destroyed under such regu- 
 lations as shall be prescribed by the Comptroller of the 
 Currency and approved by the Secretary of the Treasury. 
 The expenses of any such examination or destruction 
 shall be paid out of any appropriation made by Congress 
 for the special examination of national banks and bank- 
 note plates. 
 
 National banks can only issue notes furnished by the 
 Federal Government. Since specie payments have been 
 resumed no association has been furnished with notes of 
 a less denomination than five dollars. 
 
 It may increase or decrease its stock on a two-thirds 
 vote in value of its stockholders, and after notice, subject 
 to the following conditions : In the case of increasing its 
 stock, it must also increase its transfer of bonds to the 
 Treasurer of the United States, so that there may always 
 be in the hands of the Comptroller bonds to the amount 
 of twenty-five per cent, of the capital of such association. 
 In the case of a decrease of capital, it can, after providing 
 for the payment of its outstanding circulating notes, de- 
 crease its deposit of bonds with the Comptroller, but 
 never below twenty-five per cent, of its capital. 
 
 It may elect directors at its annual meeting, or in the 
 case of a failure then to elect, at some subsequent meet- 
 ing, of which due notice shall be given. Its affairs shall 
 be managed by not less than five directors, elected by the 
 shareholders, each director being required to be a bona- 
 fide owner of at least ten shares of unpledged stock. 
 Every director must, during his whole term of service, 
 be a citizen of the United States, and at least three fourths 
 
78 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 of the directors must at the time, and for at least a year 
 previous, have resided in the State, territory, or district, 
 in which the association is located. 
 
 Directors are required to take an oath as to their dili- 
 gent and honest administration of the affairs of the asso- 
 ciation, and transmit the same to the Comptroller of the 
 Currency, to be filed. The Directors may fill any vacancy 
 occurring in their Board until the next election. 
 
 " The shareholders of a national bank are held individually- 
 responsible, equally and ratably and not for one another, for all 
 contracts, debts, and engagements of such association to the 
 extent of the amount of their stock therein, at the par value 
 thereof, in addition to the amount invested in such shares ; 
 except that shareholders of any banking association now exist- 
 ing under State laws, having not less than five milllions of 
 dollars of capital actually paid in, and a surplus of twenty per 
 centum on hand, both to be determined by the Comptroller of 
 the Currency, shall be liable only to the amount invested in their 
 shares ; and such surplus of twenty per centum shall be kept 
 undiminished and be in addition to the surplus provided for in 
 this title ; and if at any time there is a deficiency of twenty 
 per centum in such surplus, such association shall not pay any 
 dividends to its shareholders until the deficiency is made 
 good ; and in case of such deficiency, the Comptroller may 
 compel the association to close its business and wind up its 
 affairs. . . ." 
 
 Executors, administrators, guardians, or trustees hold- 
 ing stock are not personally subject to any liabilities as 
 stockholders, but the estates which they represent are. 
 
 A national bank may, upon a further deposit of gov- 
 ernment bonds with the Secretary of the Treasury, be 
 designated, and act as a depository of public moneys and 
 as the financial agent of the government, and every asso- 
 ciation so designated as a receiver and depository of pub- 
 lic money shall take and receive at par all national 
 currency bills by whatever association 'issued, which have 
 
NATIONAL BANKS. 79 
 
 been paid into the government for internal revenue or for 
 loans or stocks. 
 
 A State bank may reorganize under the provisions of 
 this Act and may retain and keep in operation its branches. 
 
 Associations may be organized under the National 
 Banking Act for the purpose of issuing notes payable in 
 gold upon the deposit of any United States bonds bear- 
 ing interest payable in gold, with the Treasurer of the 
 United States, but none of a smaller denomination than 
 $5, nor can they issue notes in excess of eighty per cent, 
 of the par value of the bonds so deposited. 
 
 " Gold Banks," as these are termed, are required to 
 keep on hand twenty-five per cent, of their outstanding 
 circulation in gold and silver coin of the United States, 
 and to receive, at par, in the payment of debts, the gold 
 notes of every other like association which, at the time of 
 such payment, is redeeming its circulating notes in gold 
 coin of the United States. 
 
 The words " lawful money " are construed to mean 
 " gold or silver " coin of the United States. 
 
 A fine of one hundred dollars is imposed for use of any 
 National Bank bill as a means of advertising, either by 
 writing or printing the name and business thereon, or by 
 sending out an advertisement in the shape of a copy of 
 any such bill. There is also a fine of fifty dollars for 
 defacing or mutilating these bills. 
 
 The cities in which national banks are located are di- 
 vided into three classes : first, ordinary ; second, reserve ; 
 and third, central reserve cities. 
 
 Ordinary cities comprise the great number of cities, 
 neither reserve nor central reserve, in which national 
 banks are required to maintain a reserve of fifteen per 
 cent, of the amount on deposit with them, three fifths of 
 which reserve may be deposited by them in reserve or 
 central reserve banks. 
 
 In reserve cities, which are divided into four groups, at 
 
80 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 this date (1895) comprising the following cities: Group 
 I, Boston, Albany, Brooklyn, Philadelphia, and Pittsburg. 
 Group 2, Baltimore, Washington, New Orleans, and 
 Louisville. Group 3, Cincinnati, Cleveland, Detroit, Mil- 
 waukee, Des Moines, and Minneapolis. Group 4, Kan- 
 sas City, St. Joseph, Lincoln, Omaha, and San Francisco. 
 National banks must keep on hand twenty-five per cent, 
 of the amount on deposit with them, one half of which 
 may consist of amounts on deposit to their credit in central 
 reserve banks. 
 
 Central reserve cities, consisting in 1895 of New York, 
 Chicago, and St. Louis. In these cities national banks 
 must maintain a reserve of twenty-five per cent, and may 
 act as the depositories of a portion of the reserve of ordi- 
 nary and reserve city banks. Any city of more than two 
 hundred thousand population may, upon written applica- 
 tion to and approval of the Comptroller, signed by three 
 fourths of the national banks, become a " Central Reserve 
 City." Upon like application, any city with a population 
 of fifty thousand or more may be added to the list of 
 reserve cities. 
 
 All national banks are required to deposit with the 
 Comptroller a fund equal to five per cent, of their circu- 
 lating notes, which fund shall be held exclusively for that 
 purpose, but may be considered as a part of their lawful 
 money reserve. 
 
 " Clearing-house certificates, representing specie and 
 lawful money specially deposited for the purpose of any 
 clearing-house association, shall also be deemed to be law- 
 ful money in the possession of any association belonging 
 to such clearing house." 
 
 When the reserve of any bank falls below the respective 
 percentages above given, such bank shall not increase its 
 liabilities by making new loans or discounts otherwise 
 than by discounting or purchasing bills of exchange 
 payable at sight, nor declare or pay any dividend on its 
 
NATIONAL BANKS. 8 1 
 
 profits, until such reserve is made good. If within thirty 
 days after notice from the Comptroller to make such re- 
 serve good the same is not done, the Comptroller, with 
 the concurrence of the Secretary of the Treasury, may 
 appoint a receiver to wind up the affairs of such bank. 
 
 The reserve required to be kept by National Gold Banks 
 is not only a percentage on its deposits, as in the case of 
 national banks, but on its circulation as well. 
 
 Each national bank in any of the reserve cities shall, 
 with the approval of the Comptroller, select a national 
 bank in a central reserve city, at which it may redeem its 
 -circulating notes at par, and may keep one half of its 
 lawful money reserve in cash deposits in such central 
 reserve city, but this does not apply to National Gold 
 Banks. 
 
 Every national bank must receive and take at par, for 
 any debt or liability to it, the notes or bills of any 
 other national bank, except the notes of associations or- 
 ganized for the purpose of issuing notes payable in gold. 
 
 The rate of interest which may be charged is the legal 
 rate prevailing in the State where such bank is located, 
 or the same as that which State banks of issue are permit- 
 ted by State law to charge. 
 
 Where no rate is fixed, seven per centum ; but the 
 premium on a bill of exchange payable at some other 
 place, is not considered interest. 
 
 The penalty for usury is the recovery of twice the 
 amount of interest received, by an action commenced 
 within two years from the time of the transaction. 
 
 The Directors may, semi-annually, declare a dividend of 
 so much of the net profits as they shall judge expedient, 
 but before the declaration of. such dividend, each bank 
 shall carry one tenth of its net earnings of the preceding 
 half year to its surplus fund until the same shall amount 
 to twenty per cent, of its capital stock. 
 
 Not more than ten per cent, of the capital paid in shall 
 
 6 
 
82 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 be Jpoaned to any individual corporation or firm, or the 
 different members thereof, but this does not prohibit the 
 discount of bills of exchange drawn against existing values, 
 or of commercial paper owned by the person negotiating 
 the same. 
 
 No loan or discount may be made on the security of 
 the stock of such bank, nor shall a bank become the pur- 
 chaser or holder of such shares except as security for a 
 previously contracted debt, and such stock shall within 
 six months be disposed of, on notice, at public sale, on 
 failure to do which a receiver may be appointed. 
 
 The liabilities of a bank shall at no time exceed its 
 capital stock paid in and undiminished, except on de- 
 mands of the following nature : 
 
 1st. Notes of circulation. 
 
 2d. Moneys deposited with or collected by the asso- 
 ciation. 
 
 3d. Bills of exchange or drafts drawn against money 
 actually on deposit to the credit of the association, or 
 due thereto. 
 
 4th. Liabilities to the stockholders of the association 
 for dividends and reserve profits. Its circulating notes 
 shall not be pledged or hypothecated to procure money 
 to be paid in on, or to increase its capital. 
 
 No portion of its capital, either in the form of dividends 
 or otherwise, shall be withdrawn by the association or any 
 member. 
 
 No dividends shall be declared in excess of the net 
 profits of the bank, a*fter deducting all losses sustained 
 and bad debts contracted. Debts on which interest is 
 due and unpaid for six months, unless well secured and 
 in process of collection, shall be considered "bad debts." 
 
 " Every association which shall have failed to pay up its 
 capital stock, as required by law, and every association whose 
 capital stock shall have become impaired by losses or other- 
 wise, shall, within three months after receiving notice thereof 
 
NATIONAL BANKS. 83 
 
 from the Comptroller of the Currency, pay the deficiency in 
 the capital stock, by assessment upon the shareholders pro 
 rata for the amount of capital stock held by each ; and the 
 Treasurer of the United States shall withhold the interest 
 upon all bonds held by him in trust for such association upon 
 notification from the Comptroller of the Currency, until other- 
 wise notified by him. 
 
 " And provided. That if any shareholder or shareholders of 
 such bank shall neglect or refuse, after three months' notice, 
 to pay the assessment, as provided in this section, it shall be 
 the duty of the board of directors to cause a sufficient amount 
 of the capital stock of such shareholder or shareholders to be 
 sold at public auction (after thirty days' notice shall be given 
 by posting such notice of sale in the office of the bank, and by 
 publishing such notice in a newspaper of the city or town in 
 which the bank is located, or in a newspaper published near- 
 est thereto), to make good the deficiency ; and the balance, if 
 any, shall be returned to such delinquent shareholder or 
 shareholders." 
 
 No bank shall pay out or put in circulation the notes 
 of any other bank which are not receivable and redeem- 
 able at par by such bank. 
 
 Over-certification of checks is strictly prohibited, render- 
 ing officers or clerks liable to imprisonment for not less 
 than five years nor more than ten, and giving the Comp- 
 troller power to appoint a receiver. 
 
 A list of the shareholders shall be kept by the Presi- 
 dent and Cashier, containing the names and residences of 
 the shareholders and the number of shares of stock held 
 by each, which list shall be subject to inspection by the 
 shareholders of the banks, creditors, and State officers au- 
 thorized to assess taxes, and on the first Monday of July 
 a copy of such list sworn to by the President or Cashier 
 shall be mailed to the Comptroller. 
 
 Five reports a year shall be mailed by each bank to the 
 Comptroller, verified under oath by the President and 
 Cashier and attested by at least three directors, giving in 
 
84 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 detail under proper headings the resources and liabilities 
 of the bank at the close of business of any past day by 
 him specified, and shall be mailed to the Comptroller 
 within five days after a request for same, and in the form 
 in which mailed to the Comptroller shall be published in 
 a newspaper, as heretofore described, and proof of such 
 publication sent the Comptroller. The Comptroller may 
 also, whenever he deems it desirable, call for special 
 reports. 
 
 Each bank must, within ten days after declaring any 
 dividend, report to the Comptroller the amount of such 
 dividend, also the amount of the net earnings, of such 
 bank in excess of such dividend, which report shall be 
 attested by the oath of the President or the Cashier. 
 
 A penalty of one hundred dollars a day for each day's 
 delay after the periods named in the last two paragraphs 
 is imposed for failure to make and transmit the reports 
 therein mentioned, which penalty, upon delay or refusal to 
 pay by the association after it has been assessed, may be 
 retained by the United States Treasurer, upon the order 
 of the Comptroller, out of the interest, as it may become 
 due, on the bonds deposited by said association to secure 
 circulation. All penalties collected under this section 
 shall.be paid into the Treasury of the United States. 
 
 The following taxes are payable, on the average amount 
 of its circulating notes, in January and July of each year 
 one half of one per cent. 
 
 Semi-annually on the average, deposits one fourth of one 
 per cent, and a like per cent, on the average amount of its 
 capital stock beyond the sum invested in United States 
 bonds. 
 
 It is required to report, within ten days from the first 
 days of January and July yearly, to the Treasurer the 
 average amount of its notes in circulation, of its deposits, 
 and of its capital beyond the amount invested in United 
 States bonds for the preceding half year. The penalty 
 
NATIONAL BANKS. 85 
 
 provided for a failure to so report is two hundred dollars, 
 to be collected as above, or by suit. 
 
 The Comptroller upon the failure of any bank to make 
 such report shall assess the tax on circulation, on the 
 amount of notes delivered to such bank, and upon the 
 highest amount of its capital and deposits. These taxes 
 are collected out of the interest on the bonds to the credit 
 of the bank. Over-payments of taxes are refunded. 
 
 The National taxes just recited do not prevent the im- 
 position of State taxes, except that such taxes shall not 
 be of a discriminating nature. 
 
 Examiners may be appointed by the Comptroller with 
 the approval of the United States Treasurer to make an 
 examination into all the affairs of any national bank, and 
 report thereon. They shall have the power to examine 
 officers or clerks under oath, and call for the production 
 of any books and papers belonging to the bank which 
 they may deem necessary. The fees of such examiner or 
 examiners, for the examination of banks not located in 
 the redemption cities or in the States of Oregon, Califor- 
 nia, Nevada, or the Territories, shall be, for banks having 
 a capital of less than $100,000, $20; $ioo,ooo-$3OO,ooo, 
 $ 2 5 I $300,000 and less than $400,000, $35 ; $400,000 but 
 less than $500,000, $40 ; $5oo,ooo-$6oo,ooo, $50 ; $600,000 
 and over, $75. 
 
 These charges shall be assessed by the Comptroller 
 upon, and paid by the banks so examined. 
 
 The fees charged for the examination of banks in the 
 redemption cities 1 and in the States of Oregon, California, 
 or Nevada, or any of the Territories, shall be fixed by the 
 Secretary of the Treasury upon the recommendation of 
 the Comptroller. No person shall be appointed to exam- 
 ine the affairs of any bank of which he is a director or 
 other officer. 
 
 Any national bank may go into liquidation and be 
 
 1 There are now no redemption cities. 
 
86 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 closed by the vote of shareholders owning two thirds of its 
 stock, of which vote it shall be the duty of the directors 
 to cause notice, certified under seal by the President and 
 Cashier, to be sent the Comptroller, and have the same 
 published for two months, in a newspaper published in the 
 city of New York, and in a local paper as provided in 
 the case of other notices. The notice shall state that the 
 association is closing up its affairs, and shall notify the 
 holders of its notes and other creditors to present their 
 notes or claims for payment. Such association shall 
 within six months after such vote deposit with the Treas- 
 urer of the United States lawful money of the United 
 States sufficient to redeem all its outstanding circulating 
 notes, which money shall be placed to its credit upon 
 " redemption account " and duly receipted for by the 
 Treasurer. 
 
 An association which is in good faith winding up its 
 business for the purpose of consolidating with another 
 association, shall not be required to deposit lawful money 
 for its outstanding circulation ; but its assets and liabili- 
 ties shall be reported by the association with which it is 
 in process of consolidation. . 
 
 Upon the deposit of sufficient lawful money to redeem 
 its outstanding circulating notes, the United States bonds 
 transferred by such association to the Treasurer of the 
 United States shall be re-assigned to it, and its share- 
 holders are discharged of all liability upon such notes, 
 which shall be redeemed at the Treasury of the United 
 States ; but should such association fail within thirty days 
 after the expiration of the time specified to make said 
 deposit, and take up its bonds, the Comptroller may sell 
 the same at public auction in the city of New York, and 
 after providing for the redemption and cancellation of its 
 circulating notes, and expenses of sale, he shall pay over 
 any balance remaining to the bank or its legal represen- 
 tatives. 
 
NATIONAL BANKS. 8/ 
 
 Redeemed notes shall be destroyed. 
 
 Upon the failure of a bank to redeem its circulating 
 notes either at its place of business or designated place 
 of redemption, the holder may cause the same to be pro- 
 tested in one package by a notary public, unless such 
 protest is waived by the President or Cashier of such 
 bank, and he delivers to the party making such demand 
 an admission in writing stating the time of the demand, 
 the amount demanded, and the fact of the non-payment 
 thereof. The notary shall forward such protest or ad- 
 mission to the Comptroller, retaining a copy thereof. If, 
 however, satisfactory proof is produced to the notary 
 public that the payment of the notes demanded is re- 
 strained by order of any Court of competent jurisdiction, 
 he shall not protest the same. The holder can recover 
 for only one protest fee on the same day. 
 
 Upon such notice of protest of the notes of a bank, 
 the Comptroller may order an examination of such bank 
 by a special agent, and if satisfied by his report, that it 
 has refused to redeem its notes, and is in default, may, 
 within thirty days after the reception of such notice of 
 such failure, declare the bonds deposited by such associa- 
 tion forfeited to the United States. 
 
 After failure to pay any of its circulating notes, except 
 by order or injunction of Court, such bank is forbidden to 
 continue its business. 
 
 Notice shall be given to the holders of the notes of such 
 defaulting bank by the Comptroller to present them for 
 payment at the United States Treasury, and he may cancel 
 an amount of bonds deposited by said bank equal at 
 current market rates, not exceeding par, to the notes 
 paid. 
 
 The United States has a first lien upon the assets of all 
 national banks until it has been reimbursed for the amount 
 of any payments made by it on account of the circulating 
 notes of said defaulting association. 
 
88 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 The bonds on deposit may be sold at public or private 
 sale by the Comptroller to redeem the circulating notes 
 of any delinquent bank, but at no price less than par or 
 less than the market value at the time of sale. 
 
 The Comptroller shall, upon becoming satisfied of the 
 refusal of any national bank to redeem its notes, or of its 
 insolvency, or its violations of those provisions of the 
 National Banking Act, which authorize the appointment 
 of a receiver for a non-compliance, therewith appoint a re- 
 ceiver with the usual powers, and require of him a bond 
 in such sum as he shall deem necessary. The receiver so 
 appointed shall pay over all moneys collected by him to 
 the Treasurer of the United States, subject to the order 
 of the Comptroller. The Comptroller shall, upon the 
 appointment of a receiver, give three months' notice to 
 creditors to present claims against such bank. 
 
 It is necessary to say but little more of that part of the 
 national banking law which relates to the dissolution of 
 banks and the placing of them in the hands of receivers, 
 as the law in regard to receiverships, etc., is not wholly 
 covered by the National Banking Act, but is to a large 
 extent that laid down in the Revised Statutes and the 
 Civil Codes of the several States in reference to receiver- 
 ships in general. 
 
 While the statute law on the subject is very strict and 
 rigorous in its dealings with all violators of its commands, 
 or failures to comply with its provisions, yet the extreme 
 penalties provided are not always enforced, as great in- 
 terests would often be seriously damaged by a rigid en- 
 forcement of those provisions which are meant not for 
 the oppression of banks but rather for the protection of 
 the general public. These are considerations which al- 
 ways weigh with the bank examiners and the officials 
 who act upon their reports. 
 
 In cases of great money stringency or panics, it is sel- 
 dom that some of the banks do not violate one or more 
 
NATIONAL BANKS. 89 
 
 of the injunctions of the national banking law ; but it 
 would be obviously ruinous, not only to the interests of 
 the community in which such bank is situated, but often- 
 times to the country at large, to forfeit the charter of a 
 bank for some minor offence. And while it is not in- 
 tended that bank officials should be allowed to violate or 
 fail to comply with the law, still it may be remembered 
 that all the actions of the bank examiners and others are 
 or should be tempered by that good sense which is al- 
 lowed them under the expansive expression, " in the dis- 
 cretion of the Comptroller," and it is wise for all interests 
 that a competent and honest Comptroller should have 
 the right to exercise his discretion. 
 
 Upon the putting of a bank into the hands of a 
 receiver, it is then in the hands of the Courts, the same 
 as any other receivership, and is therefore subject to the 
 laws governing receiverships, with the single exception 
 that the circulating notes of such bank, being secured by 
 a deposit of United States bonds, are redeemed by the 
 Government, and the bonds held as collateral sold ; the 
 surplus resulting from such sale, after the incidental ex- 
 penses are paid, is turned over to the receiver and paid 
 out by him by way of dividends on obligations of the 
 bank. Should a surplus still remain, it is paid over to 
 the shareholders. 
 
 All other claims against a defunct national bank are 
 collected in the manner like claims are recovered against 
 any other corporation insolvent or in liquidation. 
 
CHAPTER III. 
 
 State Banks New York State Banks of Deposit, and Banking Law. 
 
 State Banks. State Banks are organized under and 
 exist subject to the laws of the State in which they are 
 located, and inasmuch as we are now the proud possessors 
 of forty-four States, even if some have not yet reached the 
 stage of maturity where they can rejoice in a banking law 
 better than all the others, still there are too many State 
 banking laws to admit of even a digest of them here. It 
 is necessary, however, that the salient features of the bank- 
 ing laws of the State of New York, recognized as one of 
 the best, should be given. 
 
 No attempt will be made to explain the cause of the 
 failure of many of the State banking laws prior to 1862, 
 beyond the fact that, in a majority of cases, they imposed 
 insufficient restrictions in relation to the issue of circulat- 
 ing notes, allowing notes to be issued against railroad 
 bonds, and in some instances against real estate ; permit- 
 ting loans on real estate (which is always considered poor 
 policy for a bank of deposit, as real estate is not readily 
 convertible into cash), imposed no extra liability on di- 
 rectors, and permitted the banks' own stock, to be pledged 
 as security for loans ; but most important of all, they pro- 
 vided for no given percentage of coin or bullion, or, at any 
 rate, an insufficient percentage for the redemption of cir- 
 culating notes. The banks, not being required to keep a 
 certain percentage of gold and silver on hand in the shape 
 
 90 
 
STATE BANKS. 91 
 
 of a redemption fund, did not do so, and when the crisis 
 came there was comparatively little " lawful money " to 
 be had ; what little there was at once commanded a large 
 premium, and, owing to the then lack of telegraph and 
 transportation facilities, it was not possible to have Lon- 
 don or New York come to the rescue, as it is to-day. In 
 other words, whatever the object may have been, the 
 effect of this lack of provision for a sufficient specie re- 
 demption fund was to greatly increase the..amount of cir- 
 culating notes without increasing the supply of the only 
 thing in which they could be redeemed? Nor were these 
 banks, for the reason just given, in any better position to 
 redeem the notes of any other bank, no matter how sol- 
 vent, than their own ; and the moment it was desired to 
 use these notes outside of the State in which they were 
 issued, it could only be done at a discount proportionate 
 to the cost of transportation to their bank of issue, the 
 shipment back of the coin or bullion therefor, and the risk 
 of the notes not being paid. These were the principal 
 causes of the variations in the price of paper money issued 
 by State banks. 
 
 What was a possible condition in the West between 
 1820 and 1860, a period when State government was, to 
 say the least, in a formative stage, when banking was sim- 
 ply being experimented with, when what are now large 
 cities were little more than villages of a few hundred in- 
 habitants and these widely separated, when the only 
 means of communication between town and town was that 
 furnished by the country roads or the steamers plying on 
 our rivers, is not possible to-day, with the instant means 
 of communication afforded by the telegraph, and the re- 
 liable information obtainable from mercantile agencies, 
 who have the financial rating of every institution and firm 
 in the country. In other words, what was possible 
 in a state of chaos and general irresponsibility, is not pos- 
 sible where order prevails, and the fullest information is 
 
92 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 instantly obtainable. Hence it is not fair to assume that, 
 because the issue of State bank-notes in the West was 
 unsuccessful then, it would necessarily be so now. In 
 speaking of State banks, there has been a general dispo- 
 sition to term the systems of all States, without discrimi- 
 nation, " wild-cat " and " yellow-dog " banking, and to 
 speak of the circulating notes of all State banks in these 
 decidedly inelegant but generally understood terms. 
 
 These words, however, when applied to the bank-notes 
 or banking systems prevailing in Indiana from 1834 down 
 to 1850, that of (Aio from 1845 to l %54> that of Louisiana 
 from 1842 till the capture of New Orleans by the Federal 
 forces in the late Civil War, and that of Massachusetts, 
 commonly known as the Suffolk Bank system, and also 
 that of New York, which largely served as a model for 
 the present National Bank Act, are absolutely misleading 
 and false. 
 
 These systems were all based on sound principles, many 
 of them very scientific, and they would doubtless, if not, 
 so far as the issue of notes is concerned, rendered in- 
 operative by the practically prohibitory tax levied by the 
 Federal Government on the circulating notes of State 
 banks, have continued to the present day showing satis- 
 factory results. 
 
 While some of the State banking laws were good and 
 calculated to insure all possible safety in the redemption 
 of circulating notes and other obligations, it must be said 
 that even at most, if modelled on the National Bank- 
 ing Act and the State guaranteeing their notes, they could 
 only offer the guaranty of that particular State, and that 
 could never be as generally acceptable a guaranty as that 
 of the Federal Government. 
 
 New York State Banking Laws. In speaking of the 
 banking laws of the State of New York it may be said 
 parenthetically that these laws do not relate exclusively 
 to banks of deposit, but relate also to savings banks, trust 
 
STATE BANKS. 93 
 
 companies, building and mutual loan associations, co- 
 operative loan associations, mortgage, loan, and invest- 
 ment corporations, and safe-deposit companies, all of 
 which are rightly considered as belonging to banking. 
 But we will only at present discuss that portion of the 
 law which relates to banks of deposits. 
 The law defines " Bank " as follows : 
 
 " Any moneyed corporation authorized by law to issue bills, 
 or notes, or other evidences of debt for circulation as money, 
 or to receive deposits of money and commercial paper, and 
 to make loans thereon, and to discount bills, notes, or other 
 commercial paper, and to buy and sell gold and silver bullion 
 or foreign coins, or bills of exchange." 
 
 The act continues the State Banking Department, un- 
 der the direction of a superintendent, who is appointed by 
 the Governor for the term of three years and given power 
 to appoint a deputy, clerks, and examiners. The expenses 
 of his office are defrayed by the corporations and indi- 
 viduals required by the act to report to him. 
 
 The power of the Superintendent over the State banks 
 is practically the same as the power of the Comptroller 
 over the national banks, and no bank may transact any 
 business without his approval and a certificate from him 
 that it has complied with the law and is authorized to do 
 business. He is required through some representative to 
 examine each banking corporation, other than savings 
 banks, at least once a year, and each savings bank once 
 in two years, and oftener if he deem it expedient so to do. 
 
 No examiner shall be appointed as the receiver of the 
 corporation which he examines. 
 
 The president or cashier of every banking corporation, 
 under the State laws, is required at least once a year to 
 make a comparison of securities deposited in the office 
 of the Superintendent with the books of the Banking 
 Department. 
 
94 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 As in the case of the national banks, no bank, nor indi- 
 vidual banker, who issues circulating notes, is permitted to 
 commence business until the receipt of a certificate from the 
 Bank Department authorizing such commencement, which 
 certificate is only issued after examination as to the finan- 
 cial standing of such bank or banker, satisfactory to such 
 department, and a deposit with such department of secu- 
 rities to the amount of 10 per cent, of its paid-up capital, 
 but in no case less than the following : In cities containing 
 500,000 or more inhabitants, $100,000 ; 100,000 to 500,000 
 inhabitants, $50,000 ; 25,000 to 100,000 inhabitants, $30,- 
 ooo; and in cities of less population, $25,000; and the ap- 
 proval of such securities by such department. Nor shall such 
 bank commence business until its president and cashier, or 
 treasurer, or secretary, or its two principal officers, shall 
 have made an affidavit stating that the whole of its capital 
 stock, or such portion thereof as by law shall be required 
 to be paid or secured before the commencement of its 
 operations, has been actually paid or secured to be paid 
 according to law, and such bank shall cease to be a corpo- 
 ration if such affidavit is not filed within a year from the 
 time its charter is granted. 
 
 In Section 14 is found the principal difference between 
 the State and the National banking systems in regard to 
 the class of securities allowed to be deposited with the 
 respective banking departments : 
 
 " And every such corporation thereafter proposing to engage 
 in such business [i.e., the banking business] in this State, shall 
 before engaging in such business transfer and assign to the 
 Superintendent registered public stocks or bonds of the United 
 States, or of this State, or of any city, county, town, village, or 
 free school district in this State authorized by the Legislature to 
 be issued, to the amount in value, and to be at all times so 
 maintained by the corporation, of 10 -per cent, on its paid-up 
 capital stock ; but no less in any case than $100,000 in cities 
 the population of which exceeds 500,000 inhabitants, $50,000 
 
Sl^ATE BANKS. 95 
 
 in cities of 100,000 inhabitants, and not less than $30,000 in 
 cities containing more than 25,000 inhabitants. Such stocks 
 must be registered in the name of the Superintendent." 
 
 Foreign banking corporations doing business in the 
 State of New York are required to make the same deposit 
 as State banks, and on failure to do so the State may re- 
 strain them from the transaction of their business therein. 
 
 Securities deposited may be exchanged for other securi- 
 ties by the consent and with the approval of the Superin- 
 tendent, and any excess thereof beyond the amount 
 required may be refunded. 
 
 Bonds and mortgages on real estate may also be deposited, 
 with the approval of the Superintendent, as part of the col- 
 lateral for the issue of circulating notes, but in such case 
 the president or authorized agent of every corporation 
 depositing the same shall annex to every such mortgage 
 his affidavit that the mortgage was made and taken in 
 good faith for money loaned by the corporation which he 
 represents, to the amount therein named, and that he has 
 reason to believe that the premises thereby mortgaged are 
 worth at least 75 per cent, more than the amount of the 
 mortgage. In the discretion of the Superintendent the 
 report of any bank examiner shall be published in the 
 State paper, and in at least one daily newspaper in the 
 city of New York, and also a paper in the county where 
 the principal place of business of such corporation or 
 individual is located. 
 
 Section 17 is similar in its purport to the provision of 
 the National Banking law in regard to the impairment of 
 the capital, but instead of giving the Superintendent 
 power, if such impairment is not made good, to place the 
 bank in the hands of a receiver, it directs the Attorney- 
 General to institute proceedings for the closing of such 
 corporation or bank. 
 
 In case banks or private bankers refuse to give such in- 
 
g6 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 formation as may be demanded by the Superintendent or 
 his agent, or submit their books to examination, the 
 Superintendent is not allowed to take such heroic meas- 
 ures as is the Comptroller of the United States, but the 
 Attorney-General must institute proceedings. 
 
 Creditors of, or shareholders in, any State banking 
 corporation whose debts or shares shall amount to $1000 
 or more, may apply to the Supreme Court for an order 
 permitting and directing an examination of the affairs of 
 such corporation, and the Court may order such exami- 
 nation to be made by a referee, to ascertain the safety of 
 the investments and the prudence of the management of 
 the corporation ; the result of which examination, with 
 the opinion of the referee, may be published as directed 
 by the Court. There is no similar provision in the Na- 
 tional Bank Act. 
 
 Every corporation subject to the banking laws of this 
 State shall make a written report to the Superintendent 
 of Banks in form prescribed by him ; in the case of a bank 
 of deposit at least once in three months, on a day to be 
 designated by the Superintendent. 
 
 The law imposes a forfeiture of $100 by any bank, and 
 of $10 by any other corporation, subject to the banking 
 law for each day intervening between the time such report 
 should have been filed and the day when it actually is 
 filed, and also that any corporation failing to make two 
 successive reports as required in Section 21, shall forfeit 
 its privileges as such bank and its business shall be 
 closed. 
 
 A summary of each report other than those of savings 
 banks shall be published by the Superintendent, within 
 thirty days after the same shall have been filed, in a 
 paper at Albany, in which notices of State officers are 
 required by law to be published, and the separate report 
 of each corporation shall be published by it in at least one 
 newspaper in the place where its business is located ; or if 
 
STATE BANKS. 97 
 
 there be no newspaper in such place, in the nearest place 
 in which a newspaper is published. 
 
 The Superintendent is required to render an annual 
 report to the Legislature at the commencement of its 
 first session similar to that required of the Comptroller of 
 the Currency. 
 
 No corporation shall make any loan or discount to any 
 person, company, corporation, or firm, or upon paper upon 
 which any such persons, company, corporation, or firm 
 may be liable, to an amount exceeding the one fifth part 
 of its capital stock actually paid in, and surplus. Under 
 the national banking laws no bank is allowed to make a 
 loan to any such person in excess of 10 per cent, of its cap- 
 ital, but under both laws the discount of bills of exchange 
 drawn in good faith against actually existing values or 
 commercial or business paper actually negotiated by the 
 person issuing the same shall not be considered as a part 
 of any such loan or discount. 
 
 ** No such corporation nor any of its directors, officers, 
 agents, or servants shall directly or indirectly purchase or be 
 interested in the purchase of any promissory note or other evi- 
 dence of debt issued by it for a less sum than shall appear on 
 the face thereof to be due. Every person violating the pro- 
 visions of this subdivision shall forfeit three times the nominal 
 amount of the note or other evidence of debt or purchase." 
 
 This provision is entirely lacking in the national bank- 
 ing law, for what reason is not apparent. 
 
 The surplus profits, from which alone a dividend can 
 be made, is ascertained by charging in the account of 
 profit and loss, and deducting from the actual profits, all 
 expenses paid, interest on debts, and all losses sustained. 
 Interest unpaid, although due or accrued on debts owing 
 to the corporation, should not be included in the calcula- 
 tion of its profits previous to a dividend. Losses in 
 excess of its undivided profits should be charged against 
 
98. PRINCIPLES AND PRACTICE OF FINANCE. 
 
 principal, and no dividend should be made until such 
 deficit of capital be made good. 
 
 Any bank may, after notice of its intention so to do, 
 make application signed by its two principal officers to 
 the Superintendent for leave to change its place of busi- 
 ness to another in the same or an adjoining county, but 
 such notice must be upon the vote of a majority of the 
 Board of Directors, accompanied by the written assent of 
 two thirds in amount of the stockholders. 
 
 In the case of foreign corporations it is necessary for 
 them to secure the written permission of the Superinten- 
 dent and a written certificate from him stating that such 
 corporation has complied with all of the provisions of the 
 banking law applicable to it before it is authorized to 
 transact its business within this State. Such permission 
 and certificate continues in force but one year from its 
 date, but may be renewed from time to time for a like 
 period. 
 
 Foreign corporations must execute and file with the 
 Superintendent of Banks a written instrument appointing 
 him their true and lawful attorney, upon whom process 
 may be served in any legal action or proceeding. Upon 
 the service of such process upon the Superintendent as 
 the attorney he shall forward a copy thereof to such 
 foreign corporation. 
 
 " If it is made to appear upon application of any creditor or 
 shareholder in any such corporation, company, or association, 
 residing in this State, that the funds on deposit with the 
 Superintendent of Banks are insufficient to pay in full the 
 creditors and shareholders residing in this State, or that it is 
 insolvent, or has suspended business, or that insolvency or 
 bankruptcy proceedings have been taken against it either 
 voluntarily or involuntarily, the Supreme Court may, upon due 
 notice to the corporation, company, or association, as the court 
 shall prescribe, appoint a receiver of such funds ; and pending 
 such application, the court or judge thereof may enjoin the 
 
STATE BANKS. 99 
 
 commencement or prosecution of any other action or proceed- 
 ing against such corporation, company, or association. Upon 
 the qualifications of such receiver, the Superintendent of Banks 
 shall pay over to him the funds remaining in his hands less any 
 charges which he may have against the same, and the receiver 
 shall distribute such funds among the creditors and share- 
 holders of the corporation, company, or association residing in 
 this State in the manner prescribed by law for the payment of 
 creditors in the case of voluntary dissolution of a corporation." 
 
 Article 2 of the State law prescribes more in detail the 
 privileges, functions, duties, and requirements of banks. 
 
 Section 40 provides that five or more persons may 
 become a bank by making, acknowledging, and filing in 
 the office of the clerk of the county where such bank is to 
 be located and in the office of the Superintendent of 
 Banks a certificate in duplicate, which shall state, first, the 
 name by which such bank is to be known ; second, the 
 city, town, or village where its business is to be con- 
 ducted ; third, the amount of its capital stock, and the' 
 number of shares into which the same shall be divided ; 
 fourth, the names and places of residence of the stock- 
 holders and the number of shares held by each ; fifth, the 
 dates at which such corporation shall commence and 
 terminate ; sixth, the number of directors of the bank 
 (not less than five), and the names of the stockholders who 
 shall be directors for the first year of its incorporation. 
 
 This certificate must be recorded by the county clerk 
 and by the Superintendent of Banks in books kept by 
 them respectively for that purpose. 
 
 Provision may be made in such certificate for an 
 increase of the capital stock, for the manner in which the 
 stock of the corporation may be transferred, the number 
 of directors necessary to constitute a quorum, and for the 
 time when the annual election of directors shall be held. 
 
 Any change in any of the matters enumerated in such 
 certificate shall only become valid upon the execution of 
 
IOO PRINCIPLES AND PRACTICE OF FINANCE. 
 
 a certificate thereof filed and recorded in like manner as 
 the certificate of incorporation. 
 
 An individual banker desiring to transact business 
 under the State banking laws must file a certificate similar 
 to the above, and for failure so to do is subject to a forfeit 
 of $1000 to the people of the State for each neglect. 
 Since the enactment of the National Banking Act there 
 has been no inducement to private bankers to avail them- 
 selves of the provisions of the State law, and as none 
 now issue circulating notes, they prefer to conduct their 
 business without State interference. 
 
 Section 43 enumerates the general powers granted. 
 
 " In addition to the powers conferred by the general and 
 stock corporation laws every bank shall have power : 
 
 " i. To exercise by its board of directors, or duly authorized 
 officers or agents, subject to law, all such incidental powers as 
 shall be necessary to carry on the business of banking ; by dis- 
 counting and negotiating promissory notes, drafts, bills of 
 exchange, and other evidences of debt ; by receiving deposits ; 
 by buying and selling exchange, coin, and bullion ; by loaning 
 money on personal security ; and by obtaining, issuing, and 
 circulating notes according to the provisions of this chapter. 
 
 " 2. To take and become the owner of any stock or bonds or 
 interest-bearing obligations of the United States, or of the 
 State of New York, or of any city, county, town, or village of 
 this State, the interest on which is not in arrears. 
 
 " 3. To purchase, hold, and convey real property for the 
 following purposes : 
 
 " (a) Such as shall be necessary for its immediate accommo- 
 dation in the convenient transaction of its business. 
 
 " (b) Such as shall be mortgaged to it in good faith, by way 
 of security for loans made by, or moneys due to, such corpora- 
 tion. 
 
 " (c) Such as shall be conveyed to it in satisfaction of debts 
 previously contracted in the course of its dealings. 
 
 " (d) Such as it shall purchase at sales under judgments, 
 decrees, or mortgages held by it. 
 
STATE BANKS. IOI 
 
 " No such corporation shall purchase, hold, or convey real 
 property in any other case or for any other purpose, and all 
 conveyances of real property shall be made to it directly and 
 by name. 
 
 " All such corporations and all individual bankers shall be 
 banks of discount and deposit as well as of circulation, and the 
 usual business of banking of such corporations or individual 
 bankers shall be transacted at the place where such corpora- 
 tions or individual bankers shall be located, agreeably to the 
 location specified in the certificates required by law to be made 
 by them respectively, and filed in the office of the Superintend- 
 ent of Banks, and not elsewhere, except as otherwise provided 
 in this chapter in relation to the redemption of circulating 
 notes by agents." 
 
 By Section 44 every bank or individual banker is re- 
 quired at all times to have on hand in " lawful money " of 
 the United States, when such bank or banker transacts 
 its or his business in a city of more than eight hundred 
 thousand inhabitants, at least 15 per cent, of the aggregate 
 amount of its or his deposits, and at least 10 per cent, of 
 such deposits if such business is transacted elsewhere in 
 the State. This amount shall be called its " Lawful Money 
 Reserve." 
 
 One half of such reserve may consist of moneys on 
 deposit, subject to call, with any bank or trust company 
 in this State having a capital of not less than $200,000, 
 and approved by the Superindendent of Banks as a 
 depository of " Lawful Money Reserve." 
 
 If the " Lawful Money Reserve " of any bank or indi- 
 vidual banker shall be less than the amount above stated, 
 then such bank or banker shall not increase his liabilities 
 by making any new loans or discounts " otherwise than by 
 discounting bills of exchange payable on sight," nor shall 
 it or he declare dividends or profits until such lawful 
 money reserve has been restored. 
 
 The Superintendent of Banks -may require such bank 
 
102 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 or banker to make good such money reserve, and if it or 
 he shall fail for thirty days so to do such bank or individ- 
 ual banker shall be deemed insolvent and may be pro- 
 ceeded against as an insolvent moneyed corporation. 
 
 The act of April 23, 1895, which repeals sections forty- 
 five, forty-six, forty-seven, and forty-eight of the banking 
 law, and which went into effect immediately, provides, 
 that any two or more corporations, except savings banks, 
 organized under the banking law or any section thereof, 
 are authorized to consolidate upon compliance with the 
 following conditions : The boards of directors of the re- 
 spective corporations may enter into an agreement of 
 merger under their respective corporate seals, which 
 agreement shall be subject to the approval of the Super- 
 intendent of Banks, and which shall be submitted to the 
 stockholders of each of such corporations, at a meeting, 
 called upon at least two weeks' notice, and published for 
 at least two successive weeks in a newspaper in the coun- 
 ties in which such corporations are located, and which 
 agreement shall be approved at each of such meetings of 
 the respective stockholders separately by stockholders 
 owning at least two thirds of the stock ; such agreement 
 and verified copies in duplicate of the proceedings of the 
 stockholders of the respective corporations shall be filed 
 with the Superintendent of Banks, and with the clerk of 
 the county of the domicil of the corporation into which 
 the other is merged. Upon which the merger is deemed 
 consummated, and the consolidated corporation may call 
 in the stock of the old corporations, and issue new stock. 
 
 Any stockholder not voting in favor of such merger, 
 may at such meeting or within twenty days thereafter 
 object to such merger and demand payment for his stock. 
 
 The consolidated corporation shall have all the rights, 
 powers, and privileges of the old companies, and be re- 
 sponsible for their debts and obligations. 
 
 At least 50 per cent, of the capital stock of every bank 
 
STATE BANKS. 1 03 
 
 shall be paid in before it shall commence business, and the 
 remainder of its capital stock shall be paid in instalments 
 of at least 10 per cent, each on the whole amount of the 
 capital, as frequently as one instalment at the end of each 
 succeeding month from the time it shall be authorized by 
 the Superintendent of Banks to commence business, and 
 the payment of each instalment shall be certified to the 
 Superintendent under oath by the president or cashier of 
 the corporation. 
 
 Only citizens of the United States are eligible as direc- 
 tors, and at least three fourths of the directors must be 
 citizens of the State, and in case of a bank having a capi- 
 tal of $50,000 or over, each director must own in his own 
 right stock of the bank equal in value to $1000, and in 
 case of a bank having a less capital than $50,000 must be 
 a stockholder in his own right to an amount equal to at 
 least $500, such directorship to terminate upon his ceas- 
 ing to possess such amount of stock. Directors shall hold 
 office for one year and until their successors are elected 
 and have qualified. The president is to be chosen from 
 among the Board of Directors. 
 
 Each director, when appointed or elected, shall take an 
 oath that he will, so far as the duty devolves on him, 
 diligently and honestly administer the affairs of such cor- 
 poration, and will not knowingly violate, or willingly per- 
 mit to be violated, any of the provisions of law applicable 
 to such corporation, and that he is the owner in good faith 
 and in his own right of the number of shares of stock re- 
 quired by this chapter, subscribed by him or standing in 
 his name on the books of the corporation, and that the 
 .same is not hypothecated, or in any way pledged as 
 security for any loan or debt. Such oath shall be sub- 
 scribed by the director making it, and certified by the 
 officer before whom it is taken, and shall be immediately 
 transmitted to the Superintendent of Banks, and filed and 
 preserved in his office. 
 
104 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 " Except as prescribed in the stock corporation law, the 
 stockholders of every such corporation shall be individually 
 responsible, equally and ratably, and not one for another, for 
 all contracts, debts, and engagements of such corporation to the 
 extent of the amount of their stock therein at the par value 
 thereof, in addition to the amount invested in such shares. 
 
 " The term ' stockholder/ when used in this chapter, shall 
 apply not only to such persons as appear by the books of the 
 corporation to be stockholders, but also to every owner of 
 stock, legal or equitable, although the same may be on such 
 books in the name of another person, but not a person who 
 may hold the stock as collateral security for the payment of a 
 debt." 
 
 A stockholder who in good faith and without intent to 
 evade his liability as a stockholder transfers his stock on 
 the books of the corporation, when such corporation is 
 solvent, to any resident of this State of full age, is relieved 
 of the responsibility of a stockholder, and such responsi- 
 bility devolves upon the person to whom the stock is 
 transferred. 
 
 All contracts and all notes and bills issued by it and 
 put in circulation as money shall be signed by the presi- 
 dent or vice-president and cashier. 
 
 The rate of interest permitted to be charged is 6 per 
 cent., which interest may be taken in advance, reckoning 
 the days for which the evidence of debt has to run. 
 
 Knowingly taking, receiving, reserving, or charging a 
 greater rate of interest forfeits the entire interest which 
 the note, bill, or other evidence of debt carries with it, or 
 which has been agreed to be paid thereon, and the person 
 paying the same may recover back twice the amount of 
 interest thus paid, provided such action is brought within 
 two years from the time such excessive interest is taken, 
 but the discount of a bill of exchange, note, or other evi- 
 dence of debt payable at some other place than the place 
 of purchase, discount, or sale, at not more than the cur- 
 
STATE BANKS. 10$ 
 
 rent rate of exchange for sight drafts, or a reasonable 
 charge for the collection of the same in addition to the 
 interest, shall not be considered as taking or receiving a 
 greater rate of interest than 6 per cent, per annum. 
 
 The avowed object of this section is to place and main- 
 tain State banks on an equality in this particular with 
 national banks. 
 
 An exception is made to the above rule in the case of 
 advances of money repayable on demand to an amount of 
 not less than $5000 upon warehouse receipts, bills of lad- 
 ing, certificates of stock, certificates of deposit, bills of 
 exchange, bonds, or other negotiable instruments pledged 
 as collateral, when the banks and the borrower may agree 
 upon any rate of interest they choose. 
 
 In addition to securities deposited as collateral to its 
 circulating notes, each bank or banker before commencing 
 business shall place and keep on deposit with the Super- 
 intendent of Banks, stocks of this State or of the United 
 States bearing interest to the amount of $1000, to be 
 held as a pledge of good faith and a guaranty of compli- 
 ance with the banking laws of the State on the part of 
 such bank or individual banker, out of which interest the 
 Superintendent may retain any assessments or penalties 
 imposed upon such bank or individual banker after the 
 institution of proper legal proceedings. 
 
 Section 50 makes provision for the change of a State to 
 a National bank. This is already detailed in the chapter 
 on National Banks. 
 
 Incorporation as a National bank is deemed a surrender 
 of its charter as a State bank, and it shall cease to be a 
 corporation under the laws of the State, except that for 
 the term of three years thereafter its corporate existence 
 shall be deemed to continue for the purpose of prosecut- 
 ing and defending suits by and against it and of enabling 
 it to close its concerns and to dispose of and convey its 
 property. Such change, however^ shall not release any 
 
106 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 bank from its obligation to pay and discharge all the 
 liabilities created by law, or incurred by it before such 
 change. 
 
 Upon such change the plates and dies of any such bank 
 in the Banking Department shall be forthwith so obliter- 
 ated as to prevent all future use of the same. 
 
 Section 63 : " Whenever any banking corporation, organized 
 and doing business under the laws of the United States, shall 
 under the provisions of any act of Congress be authorized to 
 dissolve its organization as such national bank corporation, 
 and shall have taken the action required to effect such dissolu- 
 tion, a majority of the directors of such dissolved corporation 
 may, upon the authority in writing of the owners of two thirds 
 of its capital stock, execute the certificate of incorporation re- 
 quired by Section 40 of this chapter. 
 
 " Upon the execution and proof of acknowledgment of such 
 certificate, which shall also set forth the authority in writing of 
 the stockholders as required by this section, and upon filing a 
 copy thereof in the office of the Superintendent of Banks, with 
 proof that the original is duly recorded in the office of the 
 clerk of the county where any office of such corporation shall 
 be located, such corporation shall be held and regarded as an 
 incorporated bank under and in pursuance of the laws of this 
 State, and shall be entitled to all the privileges and be subject 
 to all the liabilities of banks so incorporated ; and thereupon 
 all the property of the dissolved national bank corporation 
 shall immediately by act of law and without any conveyance 
 or transfer be vested in and become the property of such State 
 bank. The directors of the dissolved corporation at the time 
 of such dissolution shall be the directors of the bank created 
 in pursuance hereof until the first annual election of directors 
 thereafter, and shall have power to take all necessary measures 
 to perfect its organization, and to adopt such regulations con- 
 cerning its business and management as may be proper and 
 just and not inconsistent with law." 
 
 The section relating to Circulating notes, plates, etc., 
 will be here omitted, as State banks no longer issue circu- 
 
STATE BANKS. IO/ 
 
 lating notes, only one bank having out an issue of about 
 $2400. The sections relating to the issue of notes, de- 
 posit of securities to insure their payment, and other mat- 
 ters connected therewith are consequently omitted. 
 
 Section 76. After the application of the proceeds of 
 such security to the redemption of the circulating notes 
 presented within the time prescribed by Section 73, the 
 residue of such proceeds shall be deposited in the Treasury 
 and applied toward paying the ordinary expenses of the 
 Banking Department. 
 
 Notices required to be given to creditors of insolvent 
 banks shall be published at least six weeks in one or more 
 newspapers selected by the Superintendent. 
 
 Section 79. Any bank or its receiver or agents and 
 any individual banker or his legal representative or suc- 
 cessor may give notice to the superintendent of their or 
 his intention to close business. 
 
 After the payment of all lawful claims and demands 
 against such bank or banker they or he may divide the 
 remaining property of the bank or banker among the 
 stockholders or their personal representatives. 
 
 Section 82 prohibits the circulation of foreign bank 
 notes, by which is meant the notes of any bank situated 
 outside of the State of New York. 
 
 Section 83 provides that no bank shall pay out for 
 paper discounted or purchased any circulating note not 
 received by such bank at par. 
 
 No bank or individual banker shall issue or put in cir- 
 culation any bill or note of such bank or banker unless 
 the same shall be made payable on demand and without 
 interest, except bills of exchange on foreign countries or 
 places beyond the limits or the jurisdiction of the United 
 States, which bills may be made payable at or within the 
 customary usance, or at or within ninety-days' sight, and, 
 except certificates of deposit payable on presentation, 
 with or without interest, to bearer or to the order of a 
 
108 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 person named therein ; but no such certificate of deposit 
 shall be issued except as representing money actually on 
 deposit. 
 
 "All checks, bills of exchange, or drafts appearing on their 
 face to have been drawn upon any bank or individual banker 
 carrying on banking business under the laws of this State, 
 which are on their face payable on any specified day or in any 
 number of days after date or sight thereof, shall be due and 
 payable on the day mentioned for the paymeiit of the same, 
 without any days of grace being allowed, and it shall not be 
 necessary to protest the same for non-acceptance." 
 
 By the Act of May 9, 1894, " on all notes, drafts, checks, 
 acceptances, bills of exchange, bonds, or other evidences of 
 indebtedness made, drawn, or accepted by any person or cor- 
 poration after this act shall take effect and in which there is 
 no expressed stipulation to the contrary, no grace, according 
 to the custom of merchants, shall be allowed, but the same 
 shall be due and payable, as therein expressed, without grace. 
 
 " This act shall take effect and be in force on the ist day of 
 January, 1895." 
 
 Section 88. " No foreign corporation, other than a national 
 bank, shall keep any office for the purpose of receiving de- 
 posits, or discounting notes or bills, or issuing any evidence of 
 debt to be loaned or put in circulation as money within this 
 State." 
 
 Section 89. " No bank in this State or any officer or di- 
 rector thereof, shall open or keep an office of deposit or dis- 
 count other than at its usual place of business. 
 
 " Every such officer or director violating the provisions of 
 this section shall forfeit to the people of the State the sum of 
 $1000 for every such violation." 
 
 Section 90. " No person shall pay, give, or receive in pay- 
 ment, or in any way circulate or attempt to circulate any bank 
 bill or any promissory note, bill, check, draft, or other evi- 
 dence of debt, issued by any bank or individual banker, which 
 shall be made payable otherwise than in lawful money of the 
 United States. 
 
STATE BANKS. 1 09 
 
 " Every person violating this provision shall forfeit to the 
 people of the State the face amount or value of such bill, note, 
 or other evidence of debt so given, paid, received, circulated, 
 or offered, to any person who will sue for the same sixty days 
 after the commission of the offence." 
 
 Section 91. "All bills, notes, or other instruments which 
 shall be issued by any bank or individual banker purporting 
 to be received in payment of debts due to it, shall be deemed 
 and taken to be promissory notes for the payment on demand 
 of the sum or value expressed in such instrument, and such 
 sum shall be recoverable by the holder or bearer of such in- 
 strument, in like manner as if the same were a promissory 
 note." 
 
 Section 92. "No person engaged in the business of bank- 
 ing in this State, not subject to the supervision of the superin- 
 tendent and not required to report to him by the provisions of 
 this chapter, shall make use of any office sign at the place 
 where such business is transacted, having thereon any artificial 
 or corporate name, or other words indicating that such place 
 or office is the place or office of a bank ; nor shall such per- 
 son or persons make use of or circulate any letter-heads, bill- 
 heads, blank notes, blank receipts, certificates, circulars, or 
 any written or printed or partly written and partly printed 
 paper whatever, having thereon any artificial or corporate 
 name, or other word or words, indicating that such business is 
 the business of a bank. 
 
 " Every person violating this provision shall forfeit the sum 
 of $1000. But this section shall not apply to any person or 
 persons engaged in the business of banking prior to October, 
 1892." 
 
CHAPTER IV. 
 
 Methods of Business of Banks Loans Mutual Assistance Over-Certifi- 
 cation Reclamation Management Board of Directors Officers and 
 Employes. 
 
 Methods of Business. The method of conducting 
 business is in a general way the same in all banks, whether 
 national, State, savings, or private. They all receive money 
 from their depositors, on which savings banks and some 
 private banks allow interest, but State and national banks 
 generally do not. This money is again loaned at a higher 
 rate of interest than that paid to the depositors ; the dif- 
 erence in rate between the interest paid and the interest 
 received constituting the entire income of savings banks 
 and forming the principal income of all banks. 
 
 Of course, in the different banks the loans made by 
 them assume a different form, the law prescribing that 
 banks of deposit may negotiate loans on commercial 
 paper and personal securities, the National law forbid- 
 ding banks organized under it to loan on real estate. 
 Consequently, the bulk of all loans made by banks of de- 
 posit must be on commercial paper and personal security. 
 
 The laws of the State of New York forbid savings 
 banks loaning on commercial paper, and specify, with 
 great particularity, the kind of collateral on which they 
 may make loans, including in that collateral first mort- 
 gages on real estate, hence, a very large portion of their 
 loans are made on real estate. 
 
 no 
 
METHODS OF BUSINESS OF BANKS. Ill 
 
 Banks of deposit, at one time, received a large income 
 from acting as the fiscal agent of corporations, but this 
 business has been almost entirely absorbed by trust com- 
 panies and private bankers, which, on account of their 
 fewer governmental restrictions, can offer greater accom- 
 modations to the companies for which they act when such 
 companies are in need of assistance. 
 
 Another source of revenue was in acting as the agent of 
 the Federal Government for the sale and registration of 
 United States bonds. This, however, no longer exists. 
 
 Although loans of banks of deposit, other than the dis- 
 count of commercial paper, are based generally on stocks, 
 shares, warehouse receipts, bills of lading, or certificates 
 representing the ownership of some commodity, as a 
 broad proposition it may be said that anything which 
 possesses a real tangible value is dealt in and money can 
 be obtained upon it. 
 
 Domestic exchange is also a source of large revenue to 
 both national and State banks of deposit. 
 
 Mutual Assistance of Banks. Any careful study of 
 the capital, surplus, amount of loans, etc., of the banks of 
 any large city in this country, and more particularly of 
 New York, cannot fail to convince one of the necessity of 
 banks extending to each other assistance. This assist- 
 ance is rendered only on a business basis, but could never- 
 theless be seldom dispensed with, and certainly not during 
 a stringency of money, when it is necessary that all our 
 banks should stand shoulder to shoulder, the stronger 
 assisting the weaker. A good illustration of this was the 
 acceptance, by all the bank members of the Clearing House, 
 of its certificates in payment of their daily balances in 
 1875, 1884, during the threatened panic following the em- 
 barrassment of the Barings, and again in 1893. The ordi- 
 nary form of assistance is that rendered by the re-discount 
 of paper, i. e., where one bank has more paper than it can 
 conveniently carry, it re-discounts a portion thereof with 
 
112 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 one or more banks. This aid is being constantly extended 
 by the banks in the larger cities to those in the smaller 
 cities and towns. 
 
 Over-Certification. At one time, the over-certifica- 
 tion of the checks of private bankers and brokers became 
 such a common matter, and one or two banks were so 
 badly crippled by the failure to make good these over- 
 certified checks, that the Comptroller of the Currency 
 found it necessary to threaten to enforce the provision in 
 the National Banking Act in relation thereto, which is 
 placing the bank in the hands of a receiver. 
 
 This inability to over-certify would have so seriously in- 
 terfered with the business of some few banks that they 
 resigned their National Bank charters and reorganized 
 under the State law, which is more liberal. Of course, 
 this over-certification can be easily avoided by the teller 
 stating he will pay the check in money, which cannot be 
 refused. 
 
 Reclamations. Reclamations of improperly or irregu- 
 larly drawn or endorsed checks, or checks which are not 
 good for the amounts called for, take place daily between 
 the various banks, each bank returning to the other the 
 checks drawn against it which for any reason it refuses to 
 pay ; the bank receiving the check crediting the same to 
 the bank returning it, just as though the same were paid 
 in cash, and charging the amount of such check to the 
 person depositing it. 
 
 Loans on Collateral. The cashier of the bank is the 
 man to whom the sufficiency of collateral is usually re- 
 ferred when a loan is sought, and oftentimes loans of hun- 
 dreds of thousands of dollars to well known houses are 
 negotiated over the telephone wires, the houses sending 
 the collateral over by messenger. Of course, these loans 
 being usually call loans, if the collateral is not satisfactory, 
 are immediately called in or other collateral' demanded. 
 Such loans are only made to houses with whom the bank 
 
METHODS OF BUSINESS OF BANKS. 113 
 
 has long had dealings, and whose commercial rating is very 
 high. The writer has known of half a million dollars 
 being negotiated by telephone message. It is understood 
 that the borrower will furnish satisfactory collateral, and 
 the loan is generally simply placed to the credit of the 
 borrower on the books of the bank. 
 
 The Management of a Bank ; the Officers by whom 
 its Business is Conducted, and their Respective 
 Duties. Necessarily the management of a bank is largely 
 dependent upon its location and the character and amount 
 of its business, but speaking broadly it is safe to say that 
 the management of all large banks of deposit, and the 
 method and manner in which their business is conducted, 
 is essentially the same and differs only in detail. 
 
 The highest power of the bank is lodged in the Board 
 of Directors, whom we will consider first. 
 
 Board of Directors. In banks of deposit, both State 
 and National, the Board of Directors shall consist of not 
 less than five nor more than thirteen members. A person 
 to be qualified as a Director must be the absolute owner 
 of ten unpledged shares of the capital stock of said bank, 
 and three fourths of the members of the Board must be 
 residents of the State in which such bank is located. The 
 State law provides that in banks whose capital does not 
 exceed $50,000, each director must be possessed in his 
 own right of at least five unpledged shares of the capital 
 stock of such bank ; in banks whose capital is in excess of 
 $50,000, each director must be the owner of ten unpledged 
 shares ; and three fourths of the members of such Board 
 shall be residents of the State, city, and county where 
 such bank is located. 
 
 The selection of the directors of a bank is largely gov- 
 erned by the business which such directors it is thought 
 can bring to the bank, the position they occupy in the dif- 
 ferent trades or professions, their knowledge of the finan- 
 cial and business standing of persons likely to do business 
 
114 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 with such bank, and the general reputation they enjoy in 
 the community. 
 
 Banks in the larger cities are often located in a neigh- 
 borhood the business of which is almost exclusively con- 
 fined to one trade. In New York, for instance, there are 
 banks whose business is derived almost solely from the 
 dry-goods trade, which banks are necessarily located in a 
 convenient locality to such trade. Other banks derive 
 their business from other trades. In the case of banks 
 whose business is confined largely to one trade, the direc- 
 tors are selected naturally with special reference to their 
 influence in that trade, and their knowledge of the standing 
 of firms engaged therein. 
 
 While the law only prescribes that a director should be 
 the holder of five or ten shares of stock, the judgment of 
 an intelligent community dictates that a director should 
 have a more substantial interest than this ; and, as a mat- 
 ter of fact, most of the directors of banks are chosen, not 
 only on account of the qualifications before mentioned, 
 but on account of their large holdings of stock in the 
 institutions which they serve. 
 
 In the first instance, of course, relying to some extent 
 on the advice of the officers of the bank, who are sup- 
 posed to be particularly well informed as to the character 
 of persons desiring loans, they settle upon the amount of 
 accommodation to be extended to each depositor. In many 
 banks loans are only made upon their approval, and in 
 the first instance no large amount of credit is extended 
 to any person, firm, or corporation without their sanction ; 
 and while the exigencies of business are such that it will 
 not permit that all paper should be submitted to them 
 before loans are negotiated thereon, still it is true that 
 loans, being ^ade in many instances subject to call, in 
 order to stand must receive the approval of the Board. 
 And as banks make a certain class of loans only on condi- 
 tion that they may call upon the borrowers at any time to- 
 
METHODS OF BUSINESS OF BANKS. 115 
 
 reduce the amount of their indebtedness, which, taken in 
 connection with the above stated fact that the amount, 
 character, and time of accommodation are, in the first in- 
 stance, prescribed by the Board, relieves the executive 
 officer of much responsibility that is generally supposed 
 to devolve upon him personally. 
 
 The compensation of the directors is usually in the form 
 of a charge for each Board meeting attended, although in 
 many banks they receive no specific compensation other 
 than the benefit they derive from the additional value and 
 dividends on their stock to which their advice is supposed 
 to contribute. 
 
 Next in importance to the Board of Directors is the 
 executive head of the bank, generally known in the 
 United States as the President ; in England, in the case 
 of the Bank of England, as the Governor ; and in other 
 banks as the Manager, and in Canada as the Manager, 
 General or Resident, as the case may be. 
 
 In the United States the President of a bank is always 
 a member of the Board of Directors, but in England the 
 Manager is never a member of the Board of Trustees 
 or Directors. 
 
 President. The President, with the concurrence and 
 sanction of the Board of Directors, has absolute control 
 over the policy and discipline of the bank, and to him all 
 the other officers except directors are answerable for the 
 faithful discharge of their various duties. He is usually 
 selected with especial reference to his knowledge of the 
 character of the business to be transacted by the bank 
 over which he is called upon to preside, his influence with 
 the trade which the bank desires to reach, his knowledge 
 of credits, and his general business reputation in the 
 community, on which so much depends the success of the 
 bank. It is his province, assuming that he is the active 
 head of the bank, which in some cases he is not being 
 occasionally simply a figure-head, but this is not generally 
 
Il6 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 true in large banks, to keep himself not only thoroughly 
 posted in regard to the standing of the various persons 
 with whom the bank does business, but also with the con- 
 dition of the trade in which those people are engaged, 
 because while the person or firm negotiating a loan may 
 be perfectly solvent, it must be borne in mind that a large 
 part of the loans of banks are made against values in the 
 shape of merchandise, and not against the bare paper, 
 and it might easily happen, should the president of a 
 bank or the person in charge of the loans be ignorant of 
 the value of the merchandise on which a particular loan 
 was negotiated, that that merchandise might decrease so 
 rapidly in value as to form no safe security for the loan, 
 and occasion legal proceedings against the makers of the 
 note for the deficiency. 
 
 The president should have a pecuniary interest as a 
 stockholder in the bank which he serves. This may not 
 necessarily be larger than the interest of other stockhold- 
 ers or directors, because if the interest he has is his greatest 
 interest, it is an interest sufficient to influence, apart from 
 his reputation which is at stake, his utmost efforts for the 
 benefit and success of the institution whose policy and 
 business he is called upon to direct. 
 
 In his official capacity the president is called upon to 
 sign all contracts in behalf of the bank, all the circulating 
 notes, certificates of stock and other evidences of indebted- 
 ness issued by the bank, save certificates of deposit and 
 cashier's checks, which are signed by the cashier. The 
 president is required to give no bonds. All the lesser 
 officers holding responsible positions and having directly 
 to do with the bank's assets, are : 
 
 Vice- President. What has been said with reference to 
 the President applies with somewhat modified force to the 
 vice-president, unless he should be the real head of the 
 bank. His duties, in the absence or inability to act of 
 the president, are the same as those of the president. In 
 
METHODS OF BUSINESS OF BANKS. 1 1/ 
 
 the larger banks, where there are necessarily many depart- 
 ments, and even these are sometimes subdivided, the vice- 
 president, in addition to being called upon to serve in the 
 absence of the president, often has charge of some partic- 
 ular department, generally the credit department ; to his 
 duties in which department the remarks made in relation 
 to the qualifications of the president apply. 
 
 Cashier. The mechanism of the bank is directly under 
 the control of the cashier, who is, however, accountable to 
 the Board of Directors, by whom he is appointed and to 
 whom he gives bonds for the faithful and efficient dis- 
 charge of the duties, not only of himself, but of his sub- 
 ordinates, over whom he is supposed to exercise a direct 
 supervision. 
 
 In banks where the president or vice-president is not 
 actively in charge, the cashier assumes largely the duties 
 and responsibilities which the president would be called 
 upon to assume and perform, but in all banks the cashier 
 is necessarily conversant with the general policy and 
 management of the bank, the line of credits to be ex- 
 tended to its various depositors, and in most instances, 
 either independently or acting on the advice of the direc- 
 tors, regulates the same, and must keep himself acquainted 
 with the condition of the various accounts, so as to deter- 
 mine which accounts are profitable or otherwise. 
 
 The cashier is called upon to sign all contracts, agree- 
 ments, circulating notes, or evidences of debt issued by 
 the bank, besides cashier's checks and certificates of deposit. 
 He also signs checks drawn on other banks. In his ab- 
 sence they are signed by the president ; also drafts and 
 notes sent to other banks are endorsed by him. 
 
 The cashier also generally conducts the correspondence 
 of the bank, acts as secretary of the Board of Directors, 
 and keeps the minutes of all meetings of the board, as 
 well as of the stockholders. 
 
 Assistant Cashier. The assistant cashier usually exer- 
 
Il8 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 cises special supervision over the discount books, and 
 attends to the notes and bills payable, besides his principal 
 duty which is to relieve the cashier of matters of detail, 
 and to keep himself so thoroughly informed in regard to 
 the working of the bank, the accounts of depositors, etc., 
 that he can readily supply the cashier, vice-president, or 
 president with information in regard to them. In many 
 banks the correspondence is conducted very largely over 
 the signature of the assistant cashier, and he is specially 
 empowered to endorse checks, drafts, etc., for collection. 
 
 Paying Teller. The paying teller is often called the 
 " first teller." His duties are perhaps more exacting than 
 those of any other officer of the bank. He is generally 
 the custodian of its cash, and is personally responsible for 
 the same. In the safe or vault of the bank certain com- 
 partments are set aside for his exclusive use, to which 
 compartments in many banks there is an outer and inner 
 door, the combination of one of which is known only to 
 him and the combination of the other is known only to 
 some other officer, usually the cashier. In these compart- 
 ments are kept the greater part of the cash belonging to 
 the bank, and in which each day, after the close of busi- 
 ness, and the balancing and proof of the cash, are placed 
 all the cash, coin, etc., which have been received during 
 the day by the receiving teller, the note teller, and the 
 collection clerks, all of whom turn over to him, on his 
 receipt, the amounts received by them, as also does the 
 paying teller, the cash contents of his till, a drawer arranged 
 into numerous spaces for the convenient holding of bills 
 of various denominations. 
 
 Each morning at the opening of business for the day, 
 the paying teller takes from such compartments the 
 amount of money he thinks will be required to pay the 
 checks presented at his window, and later the amount 
 necessary to settle the Clearing-House balance, should 
 his bank be debtor. This balance in normal times is sent 
 
METHODS OF BUSINESS OF BANKS. 119 
 
 in cash to the Clearing House by trusted employes; 
 although, as has been before stated, in times of great 
 financial stringency the Clearing House issues, on the 
 deposit of satisfactory collateral, " Clearing House Certifi- 
 cates," which are receivable by it in payment of debtor 
 balances, and must, of course, to be of any real use, be 
 also accepted by creditor banks in payment of debits to 
 them, as the Clearing House has no other money than 
 that paid in by the debtor banks. With this amount the 
 paying teller is credited. 
 
 The paying teller's desk is usually a model in the way 
 of neatness and convenience of arrangement. On top of 
 it to the left are the trays containing coin, piles of gold 
 and silver of various denominations; further to.' the left 
 and a little in front of these trays are stacks of bills of 
 different denominations done up in packages, each of 
 which has been previously counted and marked. In the 
 till proper, which is a drawer underneath the desk, the 
 bills of unusual denominations are assorted, and those 
 needed to make change where checks are drawn for odd 
 or broken amounts. The bills in the stacks are usually 
 done up fifty in a package, hence a package of ones would 
 contain $50, of twos $100, of fives $250, of tens $500, and 
 of twenties $1000; the larger bills are not generally put 
 up in packages, and when called for, the teller upon tak- 
 ing them out usually puts a slip in the compartment 
 from which they are taken, or the same amount in pack- 
 ages of a smaller denomination, which being in packages 
 while the other bills are not, are readily separable, and 
 answer the purpose intended, which is always to keep the 
 same amount in each section of the till, except those 
 used for making change, and to use the money in the 
 stacks, which facilitates counting after the day's work is 
 over. 
 
 In New York City, promptly at ten o'clock, the tellers' 
 windows are opened for the transaction of business, and 
 
I2O PRINCIPLES AND PRACTICE OF FINANCE. 
 
 remain open until three, except on Saturday, when they 
 are closed at twelve. 
 
 The day's business now begins. Mr. Smith presents 
 his check to his own order for $500. The teller examines 
 the same, and if it is properly endorsed, Mr. Smith 
 being a well known depositor, keeping a good balance, 
 the check is paid, the teller handing Mr. Smith a package 
 previously counted and known to contain that sum. Mr. 
 Smith must either count the money handed him before 
 he leaves the window, or accept the teller's count. Next 
 comes a person who presents Mr. Brown's check for say 
 $5000 and wants it certified. Mr. Brown has dealt with 
 the bank a number of years, and his account is known to 
 the teller to be generally somewhere in the neighborhood 
 of $6000, but of late his balances have not been so heavy ; 
 in fact, there is a vague suspicion capable of instant veri- 
 fication that Mr. Brown's account would only show about 
 $4000 to this credit, and the National Banking Act under 
 which this bank is organized prescribes severe penalties, 
 not only on the bank, but also on the official, for the 
 over-certification of checks. To certify or not to certify ! 
 He well knows that a refusal to certify will probably be a 
 serious injury to Mr. Brown's credit, and Mr. Brown's 
 dealings have always been honorable. He does not at- 
 tempt to verify his suspicion uncertainty in his case is 
 preferable ; he certifies the check, and in the rush of 
 business forgets all about it, and probably never thinks 
 of it again unless Mr. Brown should fail to make good his 
 account ; or the teller will say, " I will pay you the 
 money." The teller is allowed a large discretion in the 
 matter of certification. The moment a check is certified, 
 it is charged against the maker. The memory of signa- 
 tures and faces is even more necessary than a memory of 
 the depositors' credit balances, as the ledger keepers can 
 always furnish the latter, while no one, in the rush of 
 business, but the teller himself, can furnish the former, 
 
 
METHODS OF BUSINESS OF BANKS. 121 
 
 although it is true he may refer to the signature book 
 for comparison. 
 
 In the payment of checks, four considerations should 
 be ever present. First, is the person presenting the same 
 entitled to receive the money for which it calls, and unless 
 he is known to the teller he cannot determine, and if not 
 known he must be identified by some one who is known. 
 Many tellers require the person identifying another to 
 write his name under the endorsement of the person 
 identified, so as to recall the name of the person by whom 
 such identification was made. The Second consideration 
 is whether the signature is genuine ; the Third whether 
 the drawer's account is good for the amount called for, 
 and the Fourth whether the first and all intermediate en- 
 dorsements on the check are correct. 
 
 The paying teller must also, as much as is within his 
 power, examine the checks returned from the Clearing 
 House for the same reasons that he examines those pre- 
 sented for payment at his window. 
 
 When the day's business is over, the paying teller 
 makes up a balance sheet, on one side of which is the total 
 amount paid out, and the amount on hand, which should, 
 of course, equal the amount of cash with which he started 
 business that day. He then receives from the other 
 tellers the amounts paid in to them during the day, for 
 which he receipts. His final proof is then made up 
 and handed to the cashier or assistant cashier, and 
 the money is locked up in the safes or vaults as before 
 described. 
 
 Receiving Teller. The receiving teller (often called 
 the second teller), as his title implies, receives moneys for 
 deposit, but as he pays out none, it is not necessary that 
 he should have the same knowledge of accounts as the 
 paying teller. It is necessary, however, that he should 
 have a thorough familiarity with counterfeit money, as it 
 is to his window the same generally comes. There are 
 
122 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 several magazines published which give lists and descrip- 
 tions of all counterfeits, with which lists the receiving 
 teller is supposed to be familiar. 
 
 Each morning he starts with an empty till, and each 
 afternoon when the day's business is done turns over the 
 cash and checks deposited with him to the paying teller 
 and receives his receipt therefor. He retains the deposit 
 slips accompanying each deposit, and marks and files the 
 same for future reference. He should require depositors 
 to endorse every check deposited, whether to order 
 or bearer, so that should any check be returned for 
 want of funds or any other reason, he may by looking at 
 the endorsement know who deposited it. 
 
 Discount Department. As discounts constitute the 
 principal business and source of income of all banks of 
 deposit, this department is the most important in the 
 bank, and is usually under the charge of its principal 
 officer or officers. It is conducted in much the same way 
 as the credit department of any large mercantile house, 
 except that a well managed bank, on account of its dis- 
 counts being generally larger in amount, should make 
 more careful inquiry as to the financial condition of the 
 borrower than is necessary for a business house to do in 
 regard to the persons to whom it extends credit. 
 
 The reports of the principal commercial agencies are 
 always on hand and almost hourly referred to ; but these 
 printed reports are seldom taken as conclusive. In a case 
 where there is any doubt, later reports are asked for from 
 the office of the agency and generally promptly supplied, 
 beside which the banks make personal inquiry of the 
 intending borrower and of each other as to the amount 
 of paper which the borrower has in the market, etc., and 
 often require a statement of his exact financial condition, 
 and any misrepresentation on his part renders him liable 
 to criminal prosecution. 
 
 Naturally, the persons or firms who take up their paper 
 
METHODS OF BUSINESS OF BANKS. 123 
 
 promptly become favorably known, and can get their 
 paper discounted at the lowest market rates. 
 
 Nearly all the large firms and persons actually engaged 
 in business have at times a large amount of paper out, 
 and some business men assert that- in order to secure loans 
 either at all or at the lowest rate of discount, it is neces- 
 sary to keep their paper on the market, as offering it to 
 banks is termed. Some even go so far as to assert the 
 necessity of issuing such paper for this purpose, even if 
 they do not need the money and keep it lying idle in 
 bank. 
 
 Discount Clerk. In all the larger banks the clerk who 
 has charge of the discounts, i. e., the paper purchased by 
 the bank, is called the Discount Clerk. Perhaps it would 
 be well here to explain why these are called discounts. 
 The reason is the paper is sold to the bank, which becomes 
 the owner thereof, paying to the seller the amount of the 
 face of the paper less the interest on the amount actually 
 paid, which is deducted therefrom and termed a discount. 
 On the acceptance of a discount the amount of interest 
 to be deducted is at once taken therefrom and the balance 
 paid to the seller of the paper. 
 
 In the discounting of paper, interest is first charged on 
 the face amount of the paper and then credited at the 
 same rate on the amount of the discount, as the discount 
 not being paid over to the seller of the paper, and he in 
 the first instance being charged interest on the whole 
 amount should be credited with interest on that amount 
 which he does not receive. To illustrate, A presents his 
 paper for $10,000, having one year to run. B agrees to 
 discount it at six per cent. The discount on $10,000 at six 
 per cent, for one year would be $600, so that A would be 
 actually receiving but $9400 while paying interest on 
 $10,000. A therefore should be credited with the interest 
 on the sum of $600 which he does not receive. The 
 computation would then stand as follows : 
 
124 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Loan $10,000, less 6 per cent, discount $9400 
 
 Plus 6 per cent, interest on amount not paid, $600 36 
 
 $9436 
 
 which would be the sum payable to A. 
 
 All paper offered to a bank for discount is first handed 
 to the discount clerk, by whom it is entered in a book 
 called the " Offering Book," which, in addition to setting 
 forth the particulars of the paper offered, often also states 
 the amount of paper already purchased from the person 
 offering the same. 
 
 After the paper has been accepted it is entered in the 
 " Dealers' Discount Book," which is so ruled as to provide 
 columns in which to enter the names of the maker, the 
 endorser, place of payment, due date, days to run, dis- 
 count, amount of exchange, and net proceeds. Postings 
 to the ledger are made direct from this book. The dis- 
 count clerk also enters paper discounted in books called 
 " Ticklers." Some banks have domestic ticklers, in which 
 are entered domestic discounts, and foreign ticklers, 
 foreign discounts. The tickler is a book used to tickle or 
 refresh the memory, from which it probably derives its 
 name. The total footings of the ticklers should agree 
 with the total of bills discounted. 
 
 As both the names of the drawer and the endorser of 
 each piece of paper offered for discount is set forth not 
 only in the Offering Book, but also in the Ticklers, by 
 reference to these books, should it be suspected that two 
 persons or firms are exchanging paper or endorsing for 
 each other, that fact could be ascertained. 
 
 In some banks, paper offered for discount and accepted 
 is numbered in red ink and filed in packages. Other 
 banks, however, will permit no writing of any description 
 or even the puncturing of the paper by a pin. 
 
 It is considered unwise to make paper payable to the 
 order of the bank, but rather, and the general practice 
 among business men is, to make it payable to their own 
 order, and then endorse it. 
 
METHODS OF BUSINESS OF BANKS. 125 
 
 The discount clerk is the custodian of and has in his 
 possession the major part of bills receivable, and each 
 night he deposits the same in the compartment of the 
 vault or safe set apart for that purpose. Each morning 
 they are taken out by himself. Should an officer desire 
 to inspect a note, the discount clerk is called upon to pro- 
 duce it, and the same is inspected in his presence, he 
 being responsible for the safe-keeping of such paper. 
 
 As paper for discount is handed him in the first instance, 
 and after being entered in the Offering Book is presented 
 to the officer or officers to decide whether it will be ac- 
 cepted or not, and when a decision has been reached, is 
 returned to him, if accepted marked " A," to be entered 
 in the proper books, and if rejected marked " R," to be 
 returned to the persons offering the same for discount, 
 naturally persons come into frequent contact with the 
 discount clerk, in order to receive information as to what 
 disposition has been made of their offerings. 
 
 It is also the duty of the discount clerk to send paper 
 falling due outside of the city in which his bank is located, 
 to the bank's correspondent in the city where the same is 
 payable. This paper is^usually sent for collection, as few 
 New York banks keep accounts in foreign banks (by 
 foreign banks are meant any banks outside the city of 
 New York) ; although it does occasionally happen that 
 New York banks at times re-discount their paper with 
 other banks, but more frequently the foreign banks re- 
 discount in the New York banks, or deposit their paper as 
 collateral for loans. Discounted paper sent to corre- 
 spondents for collection is usually transmitted through the 
 mail, and when information of its payment is received, the 
 collecting bank, if it does not remit therefor, is debited 
 with the same and " Bills Discounted " credited. If it 
 does remit "Cash" is debited and " Bills Discounted" 
 credited. It is desirable that such paper should be sent 
 to the correspondent from a fortnight to ten days before 
 maturity. 
 
126 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Note Teller. In the larger banks where there is a special 
 teller who attends to the collection and payment of notes, 
 he is known as the note teller, sometimes called the third 
 teller. He receives checks certified or uncertified or cash 
 in payment of notes, of which there are two kinds : first, 
 the notes which have been discounted by the bank and 
 the payments for which become a part of the funds of the 
 bank, the bank having already purchased the same ; and, 
 second, notes deposited for collection, the payments for 
 which are credited to the depositors of the same. Should 
 any notes either for collection or discount not be paid 
 when presented, the teller hands the same over to the 
 notary of the bank for presentation to and demand on 
 the maker, when, if not paid, they are protested. Such 
 presentation and protest are necessary in order to hold the 
 endorsers. It is of the utmost importance that the note 
 teller should make no mistake in the date of presentation 
 of a note to the drawer, at the place where the note is 
 made payable, because, should a note be presented a day 
 after its maturity and the drawer decline or be unable to 
 pay the same, the endorsers cannot be compelled to 
 pay it. 
 
 Book-keeper. " The book-keeper " is used in contradis- 
 tinction to the ledger keepers, who are also book-keepers. 
 He is the person directly responsible for the general books 
 of the bank, and the other book-keepers and ledger 
 keepers are immediately under his control. 
 
 In no business is it so necessary as in banking that the 
 books should be kept written up to date, especially the 
 depositors' accounts, else errors may and probably will 
 occur which would do great damage to the bank. All 
 accounts should be posted to date so that the exact con- 
 dition of each account can be ascertained at the beginning 
 of each day's business. It is the rule in most banks to 
 have checks entered up in the Customers' Ledger imme- 
 diately after payment or certification, and before the 
 
METHODS OF BUSINESS OF BANKS. 1 27 
 
 clerks leave the bank for the day to enter up to their re- 
 spective accounts all deposits. Should any check forming 
 part of a deposit be returned unpaid the person deposit- 
 ing the same is debited therewith. Most banks make it 
 a rule that their depositors shall not draw against that 
 portion of their deposit consisting of checks the day of 
 deposit. 
 
 The teller and collection and discount clerks have 
 books which are kept exclusively by them and are only 
 referred to by the book-keeper to post or prove his books, 
 which are not books of original entry. 
 
 The pass-books are written up by the ledger keepers. 
 
 The books should be so kept that a complete statement 
 of the bank's condition could be furnished within a day, 
 and all accounts which would influence the Board of Di- 
 rectors or other officers in the making or rejecting of dis- 
 counts or loans should be written up to date. 
 
 While the ruling of some books in the various banks 
 may differ in a minor degree, practically the same system 
 prevails in all large banks. In the smaller banks and the 
 country banks fewer books are required and used than in 
 the larger, one book in many instances answering in the 
 place of two and sometimes three. 
 
 In order to keep the books properly written up it is 
 necessary that the book-keeper should have a sufficient 
 number of assistants, and that each man should do the 
 work assigned him systematically and accurately. 
 
 Runners. Runners, usually young men, are employed 
 to present notes, drafts, and other promises to pay ; notes 
 are presented to the makers ; if they are not .in, a notice is 
 left, a printed slip with which the runner is provided, stat- 
 ing that the bank holds such and such a note payable to 
 
 the order of for the amount for which it was drawn, 
 
 and giving the last day when payment for the same will 
 be received. Drafts, of course, are presented to the per- 
 son on whom drawn, if on sight for payment, and if time 
 
128 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 drafts for acceptance. In case of the absence of the per- 
 son on whom they are drawn a like notice is left. 
 
 In regard to notes presented on the last day of payment 
 it is important that the runner should report promptly to 
 the note teller a failure to collect, so that the paper may 
 be placed in the hands of the notary to make the necessary 
 presentation, and, in the event of non-payment, protest 
 and notice to the endorsers. Generally notice is given 
 the maker several days before maturity, after which notice 
 the maker is expected to call at the bank and pay the 
 same by the morning of maturity ; if he does not do 
 so the bank again presents the note. (For presentation, 
 protest, and notice to endorsers see " Notary.") 
 
 The bank is in charge of the porter from the time the 
 watchman who has care of the bank at night leaves in 
 the morning till the clerks arrive and the books are put in 
 their proper places, and again from the time the clerks 
 leave till the watchman comes on duty. 
 
 How to Open a Bank Account. The first thing is 
 to have the necessary amount of money with which to 
 open it. Many of the New York banks of deposit refuse 
 to receive accounts averaging less than a thousand dollars, 
 and there is one well-known bank in New York which will 
 not receive an account which averages less than twenty- 
 five thousand dollars. 
 
 The next thing to do is to secure an introduction to the 
 cashier, preferably by a depositor of the bank. You are 
 then questioned as to the amount of balance you intend 
 to keep on hand, and what accommodation you expect 
 from the bank. 
 
 As the various banks have different rules in regard to 
 the amount of deposit which, as they term it, " entitles 
 a depositor to accommodation," none can be here stated. 
 The larger and more prosperous a bank, the less anxious 
 it is generally to secure new accounts, and the more inde- 
 pendent in the matter of accommodation, so that it is not 
 
METHODS OF BUSINESS OF BANKS. 129 
 
 always best to keep your account in a large bank, if that 
 account is a comparatively small one, and it is probable 
 that accommodation will be needed. 
 
 The preliminaries being satisfactorily arranged, you are 
 introduced to the receiving teller, who receives your de- 
 posit and gives you credit for the same in a book, which 
 is handed you, termed the " pass book," on one side of 
 which are credited the amounts deposited, and on the other, 
 when your book is sent in to be written up, /. *?., balanced 
 with the bank's books, is debited with the checks drawn 
 by you against those credits. 
 
 You are next introduced to the paying teller, and re- 
 quested to write your signature in a book kept for that 
 purpose in the bank and called the " Signature Book," and 
 you are given a check book. The cashier, if you are of 
 sufficient importance, accompanies you to the door and 
 you are politely bowed out, and you have opened your 
 bank account, and your hard-earned wealth is in the pos- 
 session of a soulless corporation which knows no favor, or 
 should know none. 
 
 Bank, pass books should be handed in, at least once a 
 month, to the proper ledger keeper, to be written up, and, 
 on the return of your checks and book, the checks and 
 entries in the pass book ought to be carefully compared 
 with the stubs in the check book, and, if the account is 
 found correct, the checks should be done up in a package 
 and marked checks on the bank on which they are drawn, 
 
 from to and put away in a safe place, as 
 
 generally an endorsed check is the best obtainable evi- 
 dence of a payment. 
 
 If any discrepancy is found to exist between the bank's 
 balance and the balance the depositor thinks is due him, 
 the bank should be immediately notified and the pass book 
 taken back for comparison. 
 
 Course of a Deposit. As deposits are divided into 
 two kinds, checks and currency, we will have to con- 
 
130 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 sider the same separately, as they do not follow the same 
 course. 
 
 First : In regard to currency, the amount of which 
 must be stated on the deposit slip of the depositor, who is 
 provided therewith by the bank. This currency is paid in 
 at the window of the receiving teller and by him credited, 
 together with the rest of the deposit, to the person mak- 
 ing the same, first on the pass book, then on the teller's 
 book, and finally by the ledger keeper on the ledger, and 
 is placed in the receiving teller's till, mixed with the funds 
 of the bank, of which it becomes a part, and its identity is 
 lost. 
 
 As to checks. First we will consider those which are 
 drawn upon the bank in which the depositor has his ac- 
 count. These checks, as in the case of currency, are set 
 out on the deposit slips and are handed to the receiving 
 teller, who credits the depositor with the amount thereof 
 as before described. The total amount of the deposit of 
 which such checks form a part is placed in the depositor's 
 account to his credit. The checks are passed to the ledger 
 keeper in charge of the ledger in which the drawers' ac- 
 counts are kept and are there debited to said accounts. 
 At the end of a given period, as above stated, they are re- 
 turned to the drawers when their pass books are balanced. 
 
 In regard to checks drawn on other banks, the credit is 
 made to the depositor depositing the same, in the manner 
 above described, but the checks, instead of going through 
 the books of the bank, are assorted by the assistant teller 
 and placed in numbered boxes, the numbers of which cor- 
 respond to the numbers assigned said banks at the Clearing 
 House. 
 
 After the close of business hours the checks on each 
 bank are done up in a separate package and the total 
 amount, together with the bank's name, is written there- 
 on. The total amount of checks on all the Clearing-House 
 banks, or those clearing through them, are then stated on 
 
METHODS OF BUSINESS OF BANKS. 131 
 
 the Clearing-House sheet, which can, of course, only show 
 their debits, as their holdings against this bank are not 
 yet known. The next morning at ten o'clock the clear- 
 ing clerks of the various banks meet at the Clearing 
 House, and after presenting their bank's Clearing-House 
 sheet to the Clearing House, exchange the checks of their 
 respective banks, as is described in the article on the 
 Clearing House. 
 
 The clerk of the Clearing House then gives to the 
 clerk of each bank a statement, showing the net total 
 either due to or owing by his bank from all the other 
 banks. In case the bank is a debtor this amount has to be 
 paid in by one o'clock ; and in case it is a creditor the 
 amount due is paid over to it by two oclock. 
 
 The clerks after this exchange of checks return to their 
 respective banks and the different checks are charged up 
 to the various drawers thereof, and finally returned to 
 them as before explained. 
 
CHAPTER V. 
 
 New York Clearing House. 
 
 LOCATED at present in the modest four-story brown- 
 stone building, at the corner of Pine and Nassau Streets, 
 is the " New York Clearing House Association," formed 
 by the principal banks of this city, for the purpose of 
 effecting clearances or exchanges of checks, drafts, etc., 
 between each other. The association is now erecting a 
 new home on Cedar Street. 
 
 This association was formed in 1853 with a membership 
 of fifty-five banks, whose capital aggregated $47,000,000. 
 Its present membership consists of sixty-six banks with an 
 aggregate capital of $62,622,700 and a surplus of $71,046,- 
 800. While this increase has not been as rapid as might 
 have been supposed and perhaps as has taken place in 
 some other directions, it should be borne in mind that the 
 strength of a bank or a banking institution does not 
 entirely rest upon the amount of its capital nor even of its 
 surplus, and when it is considered that this association 
 was organized by the fifty-five strongest banks in the city, 
 and it is remembered that these banks, with but few excep- 
 tions, still retain that leading position, and that only 
 institutions of the very highest character are admitted to 
 membership, the wisdom and conservatism displayed in 
 thus restricting the membership will be appreciated. It 
 may be said that in addition to the Federal supervision in 
 the case of national banks, and the State supervision in 
 
NEW YORK CLEARING HOUSE. 133 
 
 the case of State banks and trust companies, all members 
 of this association are subject to the almost daily super- 
 vision of committees appointed by, or officers of, the 
 Clearing House. 
 
 The conditions of membership are the payment of an 
 initiation fee ranging from $5000 for banks of a capital 
 of half a million to $7500 for banks with a capital of five 
 millions. Further, each member irrespective of capital 
 pays yearly $200, besides which there is a charge varying 
 from 35 to 40 cents on each million dollars cleared. 
 
 In addition to the examination spoken of, each member 
 must file weekly a statement of loans, specie, legal-tender 
 circulation, deposits, etc. 
 
 The officers and committees of the Clearing House 
 Association are chosen from the banks by which it is 
 formed. The Assistant Treasurer of the United States, 
 owing to the importance of the clearings of the Sub- 
 Treasury, is a member by courtesy, as is said by way of 
 being polite, but largely for the convenience of the banks 
 and to avoid individual presentation of claims against the 
 Sub-Treasury. 
 
 This association is designed to provide a place and 
 method by which the risk, expense, and loss of time 
 necessary in the presentation of the demands of one bank 
 against each of the other banks, members of this associa- 
 tion, and of the claims of each of those other banks in 
 turn against it and against each other, may be avoided. 
 The method by which this is accomplished in brief is by 
 the presentation by a bank of its entire demands on all 
 other banks to the Clearing House, with which the bank 
 is credited. The Clearing House receives from all other 
 banks, members, the claims against said bank, and if the 
 claims of said bank are in excess of the claims against it, 
 then the Clearing House pays to it such excess ; in case 
 the demands against such bank are in excess of its claims 
 against other banks, then the bank must pay the excess 
 
134 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 to the Clearing House, the Clearing House distributing 
 such excess among the banks to which it may be due. 
 
 In England, as early as the latter part of the eighteenth 
 century, the necessity of such institutions was recognized, 
 and in fact in several of the cities of England clearing 
 house associations were then established. 
 
 The great utility of such an institution need only be 
 mentioned to commend itself immediately to any one 
 acquainted with finance, but perhaps an illustration would 
 not be amiss. Not long since one of the larger members 
 of this association presented to it demands against the 
 other members of the association amounting to about 
 $4,000,000, and these other members presented to the 
 association demands against it only fifty cents short of the 
 amount of its claims against them. Only the balance 
 between these two amounts was paid over, the two 
 principal amounts being set off against each other ; a 
 transaction of $8,000,000 was thus accomplished by the 
 set off of credit against debit and the payment of the 
 balance of fifty cents. 
 
 The machinery by which these exchanges or clearances 
 are accomplished is as follows : The manager and his 
 staff are in their respective positions on the platform at 
 IO A.M. This platform is situated at the western end of 
 the large room on the third floor, in which room are as- 
 sembled at the respective desks allotted to them the 
 " delivery and " settling cferks " of the various members 
 of the association. Each delivery clerk brings the de- 
 mands held by his bank against the other members, done 
 up in separate parcels, this work having been accom- 
 plished the day before by the assistant tellers in his bank. 
 The settling clerks now present to the manager of the 
 association a memorandum giving the amount of the 
 total demands against the other members, with which 
 amounts the bank represented by said settling clerk is 
 credited on a proof sheet kept by the " Proof Clerk." 
 
NEW YORK CLEARING HOUSE. 135 
 
 The clerks now go to the respective desks allotted to 
 their banks on one of the three rows of desks located in 
 this room, and the actual clearances begin as follows : 
 The delivery clerk at desk No. I delivers to the settling 
 clerk of No. 2 all demands of No. I against No. 2, obtain- 
 ing a receipt therefor. At the same time No. 2*s delivery 
 clerk has delivered to No. 3's settling clerk the demands 
 of No. 2 against No. 3, upon his receipt. This mode of 
 settling prevails throughout the room until each member 
 has presented his demands against every other bank and 
 every other member's demands have been presented 
 against it, which usually consumes about twenty minutes. 
 After these settlements have been effected the settling 
 clerks send the result of the demands against their re- 
 spective banks on slips to the proof clerk by whom 
 they are entered to the debit of such bank. The proof 
 clerk now adds up the total debits and credits, which 
 should, of course, agree, because what is a credit of one 
 member is a debit of another, and vice versa. In half an 
 hour more the differences between member and member 
 are announced. Those members whose credits are in ex- 
 cess of their debits are termed creditor banks and those 
 whose debits are in excess of the credits are termed debtor 
 banks. The creditor banks collect, as soon as practicable, 
 after the settlement of the debtor banks, the amounts due 
 them, which amounts, of course, have to be paid in by 
 the debtor banks, and which amounts these debtor banks 
 are required to pay in cash, not later than half-past one. 
 
 To give an accurate idea of the importance of this 
 Clearing-House Association, it may be interesting to note 
 that while the clearings of the New York Clearing House 
 for the year ending December 31, 1894, amounted to 
 $24,387,807,019.92, although for the last ten years the 
 average annual clearances have been $35,000,000,000, those 
 of all the other clearing houses outside of New York 
 amounted to less than $21,000,000,000. It is estimated 
 
136 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 that the clearings of the London Clearing House, the next 
 most important to the New York Clearing House, amount 
 annually to about $20,000,000,000. 
 
 But not only has the Clearing House been useful in the 
 discharge of its ordinary business of effecting clearances, 
 but on account of the respect and confidence in its 
 methods and management, inspired by its conservatism, 
 it has been able at least three times within the last twenty 
 years to come to the aid of the banks, and incidentally to 
 that of the public, and to either avert or greatly amelio- 
 rate the severity of a money panic by the issuance of 
 certificates against collateral acceptable to a committee 
 appointed by it. These certificates were issued to the 
 extent of 75 P er cent, of the usual market values of the 
 securities held by such committee as collateral to their 
 issue, and were used in the settlement of the daily bal- 
 ances between its members, and, of course, released just 
 that amount of money into circulation and to that extent 
 relieved the stringency of the money market. Such cer- 
 tificates were issued in 1890 to the extent of $15,000,000, 
 about the time of the embarrassment of the Barings, 
 when the money markets of the whole world were more 
 or less convulsed. The denominations of these certificates 
 were five, ten, and twenty thousand dollars. They were 
 all taken up within five months after their issue. Another 
 issue of certificates to the amount of $41,000,000 was 
 made on June 15, 1893, which was all retired by Novem- 
 ber 1st of the same year. The following is a copy of one 
 of these certificates : 
 
NEW YORK CLEARING HOUSE. 
 
 137 
 
 W 
 
 I I 
 
 '-M O 
 
 <u ^ 
 
 
 
 oj 
 
 6 
 
 No, 
 
 $5000. 
 
 LOAN COMMITTEE OF THE NEW YORK 
 CLEARING-HOUSE ASSOCIATION. 
 
 New York, 
 
 This certifies that the ............ has deposited 
 
 with this committee securities in accordance with 
 the proceedings of a meeting of the Association, 
 held November nth, 1890, upon which this certifi- 
 cate is issued. This certificate will be received in 
 payment of balances at the Clearing House for the 
 sum of Five Thousand Dollars, from any member 
 of the Clearing-House Association. 
 
 On the surrender of this certificate 
 by the depositing bank above 
 named, the committee will endorse 
 the amount as a payment on the 
 obligation of said bank held by 
 them, and will surrender a propor- 
 tionate share of the collateral se- 
 curities held therefor. 
 
 $5000. 
 
 The government of this institution is entrusted to its 
 principal committee, the Clearing-House Committee, 
 which is composed of members elected by the various 
 banks of the association. This committee has the exe- 
 cutive management of all matters pertaining to the asso- 
 ciation. The next most important committees are the 
 Arbitration, the Conference, and the Admission Commit- 
 tees. The executive management of the Clearing House 
 is in charge of Mr. William Sherer, the present able 
 manager, and a staff of assistants. 
 
CHAPTER VI. 
 
 Savings Banks. 
 
 SAVINGS banks, so named from the fact that they are 
 designed to be the depository of savings, rather than of 
 general accounts subject to immediate check. 
 
 These banks, with the exception of those in the District 
 of Columbia (which are necessarily organized under the 
 Federal Laws), are organized and exist under the laws of 
 the States in which they are located. 
 
 As these banks are the custodians of the surplus earn- 
 ings above the immediate necessities of their depositors 
 and often represent their entire available assets, the laws 
 of this State, in particular, have thrown around them 
 numerous safeguards, not only for the protection of the 
 depositors, but of the institutions themselves. 
 
 The law is so exhaustive in its treatment of the class 
 and kind of security on which savings banks may make 
 loans or invest their moneys, that it is impossible to give 
 more than a brief resume. 
 
 In the matter of the regulations under which moneys 
 are received, interest paid or credited to the depositors' 
 accounts, loans effected, etc., the constitution and by-laws 
 of the institution often govern in the practicable workings, 
 but the constitution and by-laws are always subject to the 
 rules laid down in the statute law. 
 
 Article III. of the Banking Laws of the State of New 
 York pertains to savings banks and prescribes (Section 
 100) that thirteen or more persons, two thirds of whom 
 
 138 
 
SAVINGS BANKS. 139 
 
 shall be residents of the county where the proposed bank 
 shall be located, may become a savings bank by execut- 
 ing a certificate in duplicate, one copy of which shall be 
 filed in the office of the Clerk of such County, and the 
 other in the office of the Superintendent of Banks within 
 sixty days after its acknowledgment, setting forth : 
 
 1. The name by which the corporation shall be known. 
 
 2. The place where its business is to be transacted, 
 designating the particular city, village, or town, and if in a 
 city, the ward therein. 
 
 3. The name, residence, and, if in a city, the street and 
 number, occupation and post-office address of each mem- 
 ber of the corporation. 
 
 4. A declaration that each member of the corporation 
 will accept the responsibilities and faithfully discharge the 
 duties of a trustee in such corporation when authorized 
 according to the provisions of law. 
 
 It is necessary that a notice of intention to organize 
 shall be published at least once a week for four weeks 
 previous to filing such certificate in at least one news- 
 paper of the largest circulation published in the city, 
 village, or town in which such bank is proposed to be 
 located, or if no newspaper is published therein, then 
 some newspaper published in the county, or if none is 
 published in the county, then in a newspaper published 
 in the adjoining county. 
 
 This notice shall specify the names of the proposed in- 
 corporators, also the name of the bank and the location of 
 the same. A copy of such notice shall be sent to every 
 savings bank doing business in such county at least fifteen 
 days before the filing thereof. 
 
 If the above regulations have not been complied with 
 to the satisfaction of the Superintendent, he shall refuse 
 to file such certificate until it shall be amended in con- 
 formity with the provisions of the law and the regulations 
 thereof complied with, but if such regulations have been 
 
140 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 complied with and the certificate is accompanied with 
 satisfactory evidence of the proper publication and service 
 in good faith of such notice, he shall forthwith endorse 
 the same over his official signature " Filed for Examina- 
 tion " with the date of such endorsement. 
 
 The Superintendent shall thereupon ascertain from the 
 best sources of information at his command whether 
 greater convenience of access will be afforded depositors 
 by opening a savings bank in the place designated, 
 whether the population in the neighborhood designated 
 affords a reasonable promise of adequate support to the 
 enterprise, and whether the responsibility of the persons 
 named in the certificate is such as to command the confi- 
 dence of the community in which such savings bank is 
 proposed to be located. 
 
 If the Superintendent shall be satisfied that the organi- 
 zation of the savings bank will be a public benefit, he shall, 
 within sixty days after the same has been filed by him 
 for examination, issue a certificate to the persons named 
 in such certificate authorizing them to open an office for 
 the deposit of savings as designated in the certificate. 
 
 Such certificate shall be filed in the office of the County 
 Clerk of the County in which the savings bank is to be 
 located ; and the Superintendent of Banking shall also file 
 a duplicate of such certificate in his own office. 
 
 If the Superintendent shall not be satisfied that the 
 establishment of a savings bank is expedient and desira- 
 ble, he shall, within sixty days after the filing thereof, 
 give notice to said County Clerk that he refuses to issue 
 a certificate, which notice shall forthwith be filed by the 
 County Clerk with the certificate of incorporation of such 
 savings bank. 
 
 Upon the filing of any certificate of authorization the 
 persons named therein and their successors shall there- 
 upon become and be a corporation vested with all the 
 powers and charged with all the liabilities conferred and 
 
SAVINGS BANKS. 141 
 
 imposed by law upon savings banks, and shall have power 
 to receive on deposit money and invest the same and de- 
 clare credit and pay dividends thereon and transact the 
 business of a savings bank. They possess, however, only 
 such powers, rights, and privileges as are conferred by the 
 banking law, notwithstanding anything to the contrary in 
 their respective charters. The same thing may be said as 
 to their duties and liabilities. 
 
 After the receipt of such certificate of authorization the 
 bank must begin business within a year, but the Superin- 
 tendent may, for reasons satisfactory to himself, extend 
 the time not exceeding one year. 
 
 The Board of Trustees consists of not less than thirteen, 
 and to it the entire management and control is entrusted ; 
 they may elect a President and two Vice-Presidents, and 
 such other officers as they deem fit. The persons named 
 in the certificate of authorization are the first trustees. 
 A vacancy in the Board is filled by the Board as soon as 
 practicable at a regular meeting after the vacancy occurs. 
 Only residents of the State are eligible to election as trus- 
 tees, and removal from the State by a trustee acts as a 
 vacation of office. 
 
 The Board of Trustees may, from time to time, make 
 such by-laws, rules, and regulations, not inconsistent 
 with law, as they may think proper for the election of 
 officers, for prescribing their respective powers and duties, 
 the manner of discharging the same, for the appointment 
 and duties of committees, and generally for transacting, 
 managing, and directing the affairs of the corporation, a 
 copy of which should be transmitted to the Superintendent 
 of Banks, who should also be notified of any amendment 
 or change therein. 
 
 Regular meetings of trustees, seven being necessary to 
 constitute a quorum, shall be held as often as once a month 
 for the purpose of receiving the reports of their officers 
 and committees and for the transaction of other business. 
 
142 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 The statute provides that the office of trustee becomes 
 vacant whenever its incumbent becomes a trustee, officer, 
 clerk, or employee of any other savings bank, or when he 
 shall borrow directly or indirectly, any of the funds of 
 the savings bank in which he is a trustee, or become a 
 surety or guarantor for any money borrowed of or a loan 
 made by such savings bank, or when he shall fail to attend 
 the regular meetings of the Board, or perform any of the 
 duties devolved upon him as such trustee, for six succes- 
 sive months, without having been previously excused by 
 the Board for such failure ; but the trustee vacating his 
 office by failure to attend meetings, or to discharge his 
 duties, may, in the discretion of the Board, be eligible to 
 re-election. 
 
 The trustees shall have power to require the officers, 
 clerks, and agents of such bank to furnish security for the 
 faithful performance of their duties. 
 
 No trustee of any such corporation can have any interest 
 in the gains or profits thereof, nor as such receive any 
 payment for his services, except that such of the trustees 
 as are officers of the corporation or who act as the com- 
 mittee to examine vouchers and assets may receive such 
 compensation as a majority of the Board deem reasonable. 
 No trustee or officer of any such corporation shall for 
 himself or as an agent or partner of others borrow any of 
 its funds on deposits, or in any manner use the same 
 except to make such current and necessary payments as 
 are authorized by the Board of Trustees ; nor shall any 
 trustee or officer of any such corporation become an 
 endorser or surety, or become in any manner an obligor 
 for moneys loaned by or borrowed of such corporation. 
 
 The sums deposited with any savings bank, and any 
 dividends or interest credited thereto, shall be repaid to 
 the depositors respectively, or to their legal representa- 
 tives, after demand and under such regulations as the 
 Board of Trustees may prescribe. Such regulations shall 
 
SAVINGS BANKS. 143 
 
 be posted in the room where the business of the corpora- 
 tion is transacted, and printed in the pass-books furnished 
 by it, and constitute evidence, between the corporation 
 and the depositors holding the same, of the terms upon 
 which the deposits therein acknowledged are made. 
 
 Every such corporation may limit the aggregate amount 
 which any one person or society may deposit to such sum 
 as it may deem expedient to receive, and may, in its dis- 
 cretion, refuse to receive a deposit, and may also at any 
 time return all or any part of any deposit. The aggregate 
 amount of deposits to the credit of any individual at any 
 time may not exceed three thousand dollars, exclusive of 
 deposits arising from judicial sales or trust funds or inter- 
 est ; and to the credit of any society or corporation at any 
 time, shall not exceed five thousand dollars, exclusive of 
 accrued interest, unless such deposit was made prior to 
 May 17, 1875, or pursuant to an order of a court of record. 
 
 Any deposit made by or in the name of any minor, 
 shall be held for the exclusive right and benefit of such 
 depositor, and free from the control or lien of all other 
 persons, except creditors, and shall be paid to the person 
 in whose name the deposit shall have been made, and the 
 receipt or acquittance of such minor shall be a valid and 
 sufficient release and discharge for such deposit or any 
 part thereof to the corporation. 
 
 -A deposit made by a person in trust for another shall, 
 in the event of the death of the trustee, be paid to the 
 person for whom the deposit was made. 
 
 " The trustees of any savings bank may invest the money 
 deposited therein and the income derived therefrom only as 
 follows : 
 
 " i. In the stocks or bonds, or interest-bearing notes or 
 obligations of the United States, or those for which the faith 
 of the United States is pledged to provide for the payment of 
 the interest and principal, including the bonds of the District 
 of Columbia. 
 
144 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 " 2. In the stocks or bonds or interest-bearing obligations of 
 this State, issued pursuant to the authority of any law of the 
 State. 
 
 " 3. In the stocks or bonds or interest-bearing obligations of 
 any State of the United States which has not within ten years 
 previous to making such investments by such corporations 
 defaulted in the payment of any part of either principal or 
 interest of any debt authorized by the Legislature of any such 
 State to be contracted. 
 
 "4. In the stocks or bonds of any city, county, town, or 
 village, school district bonds, and union free school district 
 bonds, issued for school purposes, or in the interest-bearing 
 obligations of any city or county of this State, issued pursuant 
 to the authority of any law of the State for the payment of 
 which the faith and credit of the municipality issuing them are 
 pledged. 
 
 "5. In bonds and mortgages on unencumbered real prop- 
 erty situated in this State, worth at least twice the amount 
 loaned thereon. Not more than sixty-five per cent, of the 
 whole amount on deposit shall be so loaned or invested. If 
 the loan is on unimproved real property, the amount loaned 
 thereon shall not be more than forty per cent, of its actual 
 value. No investment in any bond and mortgage shall be 
 made by any savings bank, except upon a report of a commit- 
 tee of its trustees charged with the duty of investigating the 
 same, who shall certify to the value of the premises mortgaged 
 or to be mortgaged according to their best judgment, and such 
 report shall be filed and preserved among the records of the 
 corporation. 
 
 " 6. In real property subject to the provisions of the next 
 section." 
 
 " Every such corporation may purchase, hold, or convey 
 real property only as follows : 
 
 " i. A plot whereon is erected or may be erected a building 
 or buildings requisite for the convenient transaction of its 
 business, and from portions of which, not required for its own 
 use, a revenue may be derived. The cost of such building or 
 buildings and lot shall in no case exceed fifty percentum of 
 
SAVINGS BANKS. 145 
 
 the net surplus of the corporation, except by written permis- 
 sion of the Superintendent of Banks. 
 
 " 2. Such as shall have been purchased by it at sales upon 
 the foreclosure of mortgages owned by it, or on judgments or 
 decrees obtained or rendered for debts due on it, or in settle- 
 ments effected to secure such debts. All such real property 
 shall be sold by such corporation within five years after the 
 same shall be vested in it, unless, upon application by the 
 Board of Trustees, the Superintendent shall extend the time 
 within which such sale shall be made. 
 
 " Every such corporation may, with the approval in writing 
 and under the seal of the Superintendent of Banks, change its 
 location within the limits of any city or town wherein it may 
 be established. In effecting such change of location such cor- 
 poration owning a banking house and lot, may purchase such 
 additional plot under the provisions of subdivision one, of this 
 section, as the corporation may require ; and such banking 
 house and lot previously owned and occupied shall be sold as 
 provided in this subdivision concerning real property acquired 
 in satisfaction of debts. 
 
 " For the purpose of meeting current payments and expenses 
 in excess of the receipts, there may be kept an available fund 
 not exceeding ten percentum of the whole amount of deposits 
 with such corporation. Such available fund may be loaned 
 upon pledge of securities, but not in excess of ninety per- 
 centum of the cash market value of such securities so pledged. 
 
 " Should any of such securities depreciate in value, after mak- 
 ing any loan thereon, the trustees shall require the immediate 
 payment of such loan or additional security therefor, so that 
 the amount loaned shall at no time exceed ninety percentum 
 of the market value of the securities pledged for the same." 
 
 Such savings bank may also deposit temporarily in the 
 banks or trust companies authorized by statute, the ex- 
 cess of current daily receipts over the payments, until the 
 same can be judiciously invested in the securities required 
 by law. Should it appear to the Superintendent of Banks 
 that the trustees of any savings bank are violating the 
 
146 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 spirit and intent of the statute in this respect by keeping 
 permanently uninvested all, or an undue proportion of 
 the moneys received by them, he may report the facts to 
 the Attorney-General, who shall proceed against such cor- 
 poration in the same manner as against Banks of Deposit. 
 
 The trustees of any savings bank must not loan the 
 moneys deposited with them upon any other personal 
 securities whatever, and in all cases of loans upon real 
 property, a sufficient bond secured by a mortgage thereon 
 must be required of the owner. 
 
 Whenever money is loaned upon improved property, 
 such property must be insured by the borrower, and the 
 policy of insurance thereof assigned to the savings bank, 
 and in case the borrower neglects to insure or keep in- 
 sured such improved property, the Superintendent of 
 Banks may insure the same at the cost and expense of 
 the borrower. 
 
 No savings bank should directly or indirectly deal or trade 
 in real property in any other case or for any other purpose 
 than is authorized by this article, or deal or trade in any 
 goods, wares, merchandise or commodities whatever, except 
 such personal property as may be necessary in the transaction 
 of its business ; nor shall any savings bank or any officer 
 thereof in his regular attendance upon the business of the 
 bank, in any manner buy or sell exchange gold or silver, or 
 collect or protest promissory notes or time bills of exchange. 
 
 Savings banks may, however, sell gold or silver received in 
 payment of interest or principal of obligations owned by them 
 or from depositors in the regular course of business, and may 
 pay regular depositors, when requested by them, by draft 
 upon deposits to the credit of the bank in the city of New 
 York, and charge current rates of exchange for such drafts. 
 
 No savings bank may issue any certificate of deposit payable 
 either on demand or at a fixed day, or pay any interest except 
 regular dividends upon any deposits or balances, or pay any 
 interest, deposit, or any check drawn upon itself by a deposi- 
 
SA VINGS BANKS. 147 
 
 tor, unless the pass-book of the depositor be produced, and 
 the proper entry be made therein at the time of the trans- 
 action. 
 
 The Board of Trustees may, by their by-laws, provide for 
 making payments in case of loss of pass-book, or other excep- 
 tional cases where the pass-book cannot be produced without 
 loss or serious inconvenience to depositors ; but the right to 
 make such payments ceases when so directed by the Superin- 
 tendent of Banks, upon his being satisfied that such right is 
 being improperly exercised by any savings bank ; payments, 
 however, may be made upon the judgment or order of a court 
 or the power of attorney of a depositor. 
 
 The trustees of every such corporation may regulate the 
 rate of interest or dividends not to exceed five per centum per 
 annum upon the deposits therewith, in such a manner that 
 depositors shall receive, as nearly as may be, all the profits of 
 such corporation, after deducting necessary expenses and 
 reserving such amounts as the trustees may deem expedient 
 as a surplus fund for the security of the depositors, which, to 
 the amount of fifteen per centum of its deposits, the trustees 
 of any such corporation may gradually accumulate and hold, to 
 meet any contingency or loss in its business from the deprecia- 
 tion of its securities or otherwise. The trustees usually 
 classify their depositors according to the character, amount, 
 and duration of their dealings with the corporation, and regu- 
 late the interest or dividends allowed in such manner that 
 each depositor shall receive the same ratable portion of 
 interest or dividends as all others of his class. 
 
 The trustees of any such corporation should not declare or 
 allow interest on any deposit for a longer period than the 
 same has been deposited, except that deposits made not later 
 than the tenth day of the month commencing any semi-annual 
 interest period, or the third day of any month, or withdrawn 
 upon one of the last three days of the month ending any 
 quarterly or semi-annual interest period, may have interest 
 declared upon them for the whole of the period or month 
 when so deposited or withdrawn.. 
 
 No dividends or interest should be declared, credited, or 
 
148 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 paid, except by the authority of a vote of the Board of 
 Trustees, duly entered upon their minute's, whereon should be 
 recorded the ayes and nays upon each vote ; but accounts 
 closed between dividend periods may be credited with interest 
 at the rate of the last dividend, computing from the last divi- 
 dend period to the date when closed, if the by-laws so provide. 
 Whenever any interest or dividend shall be declared and 
 credited in excess of the interest or profits earned and appear- 
 ing to the credit of the corporation, the trustees voting for 
 such dividend are jointly and severally liable to the corpora- 
 tion for the amount of such excess so declared and credited. 
 
 The trustees of any such corporation whose surplus amounts 
 to fifteen per centum of its deposits, at least once in three 
 years, shall divide equitably the accumulation beyond such 
 authorized surplus as an extra dividend to depositors, in excess 
 of the regular dividends authorized. 
 
 A notice posted conspicuously in a bank of a change in the 
 rate of interest shall be equivalent to a personal notice. 
 
 In determining the per cent, of surplus held by any savings 
 bank, its interest-paying stocks and bonds should not be 
 estimated above their par value or above their market value if 
 below par. Its bonds and mortgages on which there are no 
 arrears of interest for a longer period than six months are to 
 be estimated at their face, and its real property at not above 
 cost. The Superintendent of Banks determines the valuation 
 of such stocks or bonds, or bonds and mortgages, as are in 
 arrears of interest for six months or more, and of all other 
 investments, from the best information he can obtain, and he 
 may change the valuation thereof from time to time as he may 
 obtain other and further information. 
 
 The trustees of every savings bank, by a committee of not 
 less than three of their number, on or before the first days of 
 January and July in each year, must thoroughly examine the 
 books, vouchers, and assets of such savings bank and its affairs 
 generally. The statement or schedule of assets and liabilities 
 reported to the Superintendent of Banks for the first of Janu- 
 ary and July in each year should be based upon such exami- 
 nation, and shall be verified by the oath of a majority of the 
 
SAVINGS BANKS. 149 
 
 trustees making it ; and the trustees of any savings bank may 
 require such examination at such other times as they shall 
 prescribe. The trustees must, as often as once in each six 
 months during each year, cause to be taken an accurate balance 
 of their depositors' ledgers, and in their semi-annual report to 
 the Superintendent they must state the fact that such balance 
 has been taken. 
 
 All the property of any bank or trust company which be- 
 comes insolvent, shall, after providing for the payment of its 
 circulating notes, be applied to the payment in full of any 
 sum or sums of money deposited therewith by any savings 
 bank. 
 
 The Superintendent shall receive the moneys so deposited 
 with him by the trustees of any solvent savings bank voluntarily 
 closing its business, and all moneys which may be deposited 
 with him by the receivers of insolvent savings banks pursuant 
 to the provisions of any law or the order of any court, and 
 shall receive a receipt therefor, and forthwith deposit the 
 same in some solvent savings bank or savings banks to the 
 credit of the Superintendent of Banks in his name of office, in 
 trust for the depositors and creditors of the closed savings 
 bank from which they were received. The Superintendent 
 shall report to the Legislature annually in his report the names 
 of such closed savings banks and the sums of unclaimed and 
 unpaid deposits to the credit of each of them respectively. 
 
 The Superintendent may pay over to the persons respectively 
 entitled thereto the moneys so held by him upon being fur- 
 nished with satisfactory evidence of their right to the same. 
 In cases of doubt or of conflicting claims, he may require an 
 order of the Supreme Court authorizing and directing the pay- 
 ment thereof. He may apply the interest earned by the moneys 
 so held by him towards defraying the expenses in the payment 
 and distribution of such unclaimed dividends to the depositors 
 and creditors entitled to receive the same, and he shall include, 
 in his annual report to the Legislature, a statement of the 
 amount of interest earned by such unclaimed dividends. 
 
CHAPTER VII. 
 
 Trust Companies. 
 
 THE important field covered by Trust Companies, to- 
 gether with the fact of their comparatively recent growth, 
 warrants and, in fact, necessitates a rather lengthy treat- 
 ment of the subject. 
 
 By many it is erroneously supposed that these com- 
 panies are organized to compete for business with banks, 
 both state and national. A careful review, however, of 
 the powers and privileges granted banks, both national 
 and state, including savings banks, must convince the 
 thoughtful reader that such is not the case, and while it 
 may appear at first glance that many small accounts which 
 are now kept in trust companies would otherwise be de- 
 posited in savings banks, it must be borne in mind that 
 the restrictions and regulations of savings banks in regard 
 to the drawing out of money, it being necessary for the 
 depositor not only to make out a check but to present his 
 pass-book in person, or hand the pass-book to the person 
 presenting the check, are so irksome, that many of these 
 accounts cannot be conveniently and would not be kept 
 therein. In fact, about the only thing in common be- 
 tween a trust company and a savings bank is that both 
 are required by law to pay a certain per cent, of interest 
 upon deposits. The trust company, as hereafter stated, 
 being compelled to pay two per cent., while savings banks 
 are prohibited from allowing a higher rate than five. 
 
 150 
 
TRUST COMPANIES. 151 
 
 In order to point out more clearly the difference between 
 the business conducted by a trust company and that con- 
 ducted by an ordinary bank of deposit, it will necessitate 
 a brief statement of the business conducted by such banks, 
 which is given more fully in other portions of this work, 
 particularly those chapters referring to banks of deposit. 
 Succinctly stated, the business of a bank of deposit 
 (omitting now all reference to the issuing of circulating 
 notes) is to receive money on deposit from its depositors, 
 to whom it pays no interest whatever, but in lieu thereof 
 and as compensation for the use of such moneys (only 25 
 per cent, of which national banks in the reserve cities are 
 required to keep on hand to meet the checks of its de- 
 positors, and state banks are only required to keep 15 per 
 cent. ; the balance of which deposits are loaned to various 
 borrowers), it agrees to discount acceptable commercial 
 paper offered by such depositors in a recognized propor- 
 tion to the amount of such deposits. In order to be in a 
 position to do this it follows that its loans must be of com- 
 paratively small amounts on rapidly maturing obligations ; 
 this, of course, bars out loans on real estate or on settled 
 securities. National banks are prohibited by law from 
 making loans on real estate, and are only permitted to re- 
 ceive real estate as additional security for loans previously 
 made, and while State banks of deposit are not prohibited 
 by the State law from so doing, nevertheless, as a matter 
 of good banking, they also carefully avoid loans of this 
 character. In other words, the policy of a bank is first to 
 secure large deposits on which they have to pay no inter- 
 est, and to make a great number of small loans on short- 
 time paper ; while that of a trust company is to make 
 loans large in amount running for a considerable time, and 
 to receive only deposits which will not be immediately 
 drawn out or seriously diminished, but which they must 
 be able to loan at a higher rate than two per cent., which 
 the law requires them to pay the depositor. 
 
I$2 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 In the complex life of highly civilized and wealthy 
 communities, this leaves a field open, which field, among 
 others, trust companies are designed to cover. 
 
 The class of persons who constitute their depositors 
 are salaried and professional men, who deposit moneys 
 for which they have no immediate or shortly anticipated 
 need ; business men accumulating a fund for some specific 
 purpose or their individual profits; married women with 
 separate estates, who deposit the principal, drawing, as a 
 rule, only the interest thereon ; administrators, executors, 
 trustees, and committees, whose deposits are generally 
 permanent, and not likely to fluctuate greatly in amount ; 
 assignees and receivers, whose deposits, though for a 
 shorter time, are of practically a uniform amount while 
 they last. 
 
 From the comparatively stationary and uniform char- 
 acter of its deposits, not to speak of the amount in its 
 hands as executor, administrator, assignee, receiver, or 
 committee, and over which it has absolute control, trust 
 companies are in a position, and find it advantageous, to 
 make loans of larger amount and longer duration than do 
 banks ; and as real estate is the one thing of greatest and 
 most staple value in a community, it naturally forms the 
 most desirable thing on which to make such loans. 
 
 But before money can be loaned or invested to advan- 
 tage, either in real estate or in stocks and bonds, it is 
 necessary that a sufficient amount should be accumulated. 
 It is in the collection and accumulation of these amounts 
 which, until they have arrived at a sufficiently large sum, 
 are deposited daily by the trust companies in banks, and 
 on which daily balances the banks allow them interest for 
 the use of such money, that the trust company becomes, 
 not a competitor, but a powerful auxiliary to banks of 
 deposit ; gathering in and bringing together, as they do, 
 accounts which would be of no value to the banks, but 
 which, when consolidated into one account and deposited 
 by a trust company, become of great value. 
 
TRUST COMPANIES. 153 
 
 Thus far we have spoken of trust companies almost ex- 
 clusively in their relation to banks. It must be borne in 
 mind that this is not the chief object, but merely an inci- 
 dent growing out of their organization. We will now 
 consider the real object of their formation, which is : 
 
 To act in a fiduciary capacity as fiscal agent, trustee, 
 executor, administrator, assignee, receiver, or committee 
 either for individuals or corporations. Heretofore these 
 various offices and the duties pertaining to them have 
 been discharged by individuals. 
 
 The advantages of entrusting the performance of such 
 important duties to a corporation whose life is perpetual 
 during its corporate existence, which in this State is fifty 
 years, and whose charter can be renewed, which is never 
 sick or incapacitated for the discharge of its duties, whose 
 management is confided to some of the most successful, 
 wealthy, and reputable business and professional men in 
 the community, whose combined experience and knowl- 
 edge of affairs must be greater than that of even the most 
 astute and well-informed business man, besides which they 
 devote an amount of time and labor to the study and 
 investigation of property and business affairs, the value 
 of real and personal property, which it would be obviously 
 impossible for one person to do, and their capital surplus 
 and assets, which are invested not alone in one industry, 
 but in many, and which are liable for the faithful perform- 
 ance of their duties, furnish greater security than those of 
 an individual trustee. That the appointment of such a 
 company in any of the above capacities is more desirable 
 than that of an individual, whose time is necessarily 
 largely employed in his own affairs, and whose tenure of 
 life and capacity is uncertain, is too manifest to require 
 argument. 
 
 To enumerate the different trusts which are best re- 
 posed in these companies is to repeat Section 156 of the 
 Banking Laws of this State, which is quoted farther on, 
 and to which the reader is referred. 
 
154 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 While the law does not specifically state that trust 
 companies shall receive deeds, agreements, securities, or 
 papers or things in escrow, still, on account of the confi- 
 dence which they inspire, they are often used for such 
 purpose. 
 
 Probably the greatest and most common field of useful- 
 ness occupied by trust companies is acting in the capacity 
 of trustee of stock and bondholders in the formation or 
 reorganization of corporations. A corporation is organ- 
 ized, but before its securities can be advantageously 
 brought to the attention of the investing public, it be- 
 comes necessary that some one in whom the public have 
 implicit confidence, and who will not be swayed by per- 
 sonal considerations or friendships, should investigate the 
 property which has been incorporated, inquire into the 
 title to its plant, the legality of its franchises, see that the 
 mortgage is properly drawn and covers the property 
 which it purports to mortgage, and that all the legal re- 
 quirements in regard to the incorporation of the com- 
 pany, the filing of its certificate of incorporation, the 
 payment in of the capital required, the payment to the 
 State of the corporation tax, and all other legal require- 
 ments have been duly complied with, and certify to the 
 regularity thereof, and to investigate, supervise, and cer- 
 tify to the issue of bonds, and to the issue and registra- 
 tion of stock, and that there has been no over-issue in 
 either case. Who can do this better than a trust com- 
 pany, they frequently being the authorized registrar of 
 the stock of the corporation ? 
 
 Not only have companies to be organized, but almost 
 as frequently reorganized, when it becomes necessary for 
 the stockholders to secure unity of action upon their 
 part, to respectively appoint some one to act in their 
 stead, to receive and register the outstanding securities, 
 and, upon the deposit with it of a fixed amount, to reor- 
 ganize the company and to issue new securities for the 
 
TRUST COMPANIES. 155 
 
 old, and to register and transmit to the depositors new 
 securities in the proportion agreed upon in place of the 
 securities deposited. 
 
 Very often the formulating of the plan by which this 
 re-organization is accomplished and the fixing of the basis 
 of exchange of the old securities for the new is undertaken 
 and carried through by a trust company. 
 
 The procuring of a well known company to undertake 
 such re-organization in most instances tends greatly to the 
 success of the re-organization, and the fact that a com- 
 pany of good repute is the trustee or registrar of the 
 bonds and stock of a corporation adds very appreciably 
 to the value of such securities. 
 
 Trust companies also act as agents for the payment of 
 obligations maturing at future dates, such as the premiums 
 on policies of insurance, assessments on stocks, interest 
 on mortgages, etc., and for the collection of coupons, of 
 interest, of premiums, and so on. 
 
 As agents for the stock and bond holders of various 
 kinds of corporations, who desire to act as a unit. 
 
 Also as registrar, where such certificates may be regis- 
 tered so as to indemnify the holder against loss in case 
 such certificate should be lost or destroyed. 
 
 In the case of individuals, they act as the trustees of 
 special funds for the benefit of married women, or minors, 
 for insane persons, habitual drunkards, lunatics, or for de- 
 visees whom the giver may regard as incompetent to take 
 care of the funds so placed in trust. For a corporation 
 for the accumulation of a sinking fund, etc. 
 
 Trust Companies are organized exclusively under the 
 laws of the State in which they are located, and are subject 
 to the supervision of the State Banking Department, the 
 same as State Banks. 
 
 The powers and privileges granted them are much 
 greater than those granted banks, except that they are 
 not permitted to issue circulating notes, but may in all 
 
156 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 other ways perform the functions of a bank in addition to 
 those specially conferred on them. These powers and 
 privileges are best enumerated in the language of the law 
 under which they are organized. 
 
 " Section 156 : Upon the filing of any such certificate of 
 authorization of a trust company, the persons named therein 
 and their successors shall thereupon and thereby become a 
 corporation, and in addition to the powers conferred by the 
 general and stock corporation laws, shall have power : 
 
 " i. To act as the fiscal or transfer agent of any State, mu- 
 nicipality, body politic, or corporation ; and in such capacity 
 to receive and disburse money, and transfer, register, and 
 countersign certificates of stock, bonds, or other evidences of 
 indebtedness. 
 
 " 2. To receive deposits of trust money, securities, and other 
 personal property from any person or corporation, and to loan 
 money on real or personal securities. 
 
 " 3. To lease, hold, purchase, and convey any and all real 
 property necessary in the transaction of its business, or which 
 the purposes of the corporation may require, or which it shall 
 acquire in satisfaction or partial satisfaction of debts due the 
 corporation under sales, judgments, or mortgages, or in settle- 
 ment or partial settlement of debts due the corporation by any 
 of itfe debtors. 
 
 " 4. To act as trustee under any mortgage or bond issued 
 by any municipality, body politic, or corporation, and accept 
 and execute any other municipal or corporate trust not incon- 
 sistent with the laws of this State. 
 
 " 5. To accept trusts from and execute trusts for married 
 women, in respect to their separate property, and to be their 
 agent in the management of such property, or to transact any 
 business in relation thereto. 
 
 " 6. To act under the order of appointment of any court of 
 record as guardian, receiver, or trustee of the estate of any 
 minor, the annual income of which shall not be less than one 
 hundred dollars, and as depositary of any moneys paid into 
 court, whether for the benefit of any such minor, or other 
 person, corporation, or party. 
 
TRUST COMPANIES. 157 
 
 " 7. To take, accept, and execute any and all such legal 
 trusts, duties, and powers in regard to the holding, manage- 
 ment, and disposition of any estate, real or personal, and the 
 rents and profits thereof, or the sale thereof, as may be granted 
 or confided to it by any court of record, or by any person, 
 corporation, municipality, or other authority ; and it shall be 
 accountable to all parties in interest for the faithful discharge 
 of every such trust, duty, or power which it may so accept. 
 
 " 8. To take, accept, and execute any and all such trusts and 
 powers of whatever nature or description as may be conferred 
 upon or intrusted or committed to it by any person or persons, 
 or any body politic, corporation, or other authority, by grant, 
 assignment, transfer, devise, bequest, or otherwise, or which 
 may be intrusted or committed or transferred to it, or vested 
 in it by order of any court of record, or any surrogate, and 
 to receive and take and hold any property or estate, real or 
 personal, which may be the subject of any such trust. 
 
 " 9. To purchase, invest in, and sell stocks, bills of ex- 
 change, bonds and mortgages, and other securities ; and when 
 moneys, or securities for moneys, are borrowed or received on 
 deposit, or for investment, the bonds or obligations of the 
 company may be given therefor, but it shall have no right to 
 issue bills to circulate as money. 
 
 " 10. To be appointed and to accept the appointment of 
 executor of or trustee under the last will and testament, or 
 administrator with or without the will annexed, of the estate 
 of any deceased person, and to be appointed and to act as the 
 committee of the estates of lunatics, idiots, persons of unsound 
 mind, and habitual drunkards. 
 
 " No such corporation shall have any right or power to make 
 any contract, or to accept or execute any trust whatever, which 
 it would not be lawful for any individual to make, accept, or 
 execute. 
 
 u No loan shall be made by any such corporation, directly, 
 or indirectly, to any director or officer thereof. 
 
 " No such corporation shall transact its ordinary business by 
 branch office in any city not named in its Certificate of In- 
 corporation or Charter as the place where its business is to be 
 transacted." 
 
158 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Thirteen or more persons may form a trust company, 
 upon filing a certificate stating the name of such company, 
 its place of business, the amount of its capital, and the 
 number of shares into which it is divided, the name, 
 residence, and post-office address of each member of the 
 corporation, and the term of the existence of such 
 company, which shall not exceed fifty years, and a declara- 
 tion that each member of such corporation will, if elected 
 a director, faithfully discharge the obligations and re- 
 sponsibilities of such office. This certificate must be 
 filed with the Superintendent of Banking of the State 
 within sixty days after its execution, and a duplicate must 
 be filed in the office of the county clerk of the county 
 where such company is to carry on business. 
 
 The minimum capital of such companies shall be as 
 follows : In cities containing 
 
 25,000 inhabitants or less $100,000 
 
 25,000 inhabitants or more 150,000 
 
 100,000 to 250,000 200,000 
 
 More than 250,000 500,000 
 
 Before filing such certificate notice must be published 
 at least once a week for four successive weeks in a news- 
 paper to be designated by the Superintendent of Banks in 
 the city where such trust company is to be located, and 
 shall set forth the facts so stated in the certificate of 
 organization. This notice must be sent to every trust 
 company doing business in such city at least fifteen days 
 before the filing of the organization certificate. 
 
 The Superintendent upon the receipt of such certificate 
 conforming to the provisions of this act, as to execution, 
 notice, etc., shall file the same, and he shall then proceed 
 to ascertain the fitness of the persons named for the dis- 
 charge of the trust which they ask permission to assume, 
 and if such investigation prove satisfactory, he shall 
 within sixty days after the filing of such certificate, and 
 after knowledge that the entire capital stock has been 
 
TRUST COMPANIES. 159 
 
 paid in, in cash, issue under his seal a " Certificate of 
 Authorization " to the incorporators to commence 
 business, which shall be transmitted to the County Clerk, 
 who shall file the same and attach it to the organization 
 certificate and record both certificates in the records of 
 incorporation. A duplicate of such certificate ot 
 authorization shall be filed by the Superintendent in his 
 office. 
 
 The Superintendent, may, however, if he deem such 
 organization inexpedient refuse to issue a certificate of 
 authorization, and shall file a notice of such refusal with 
 said County Clerk. 
 
 Section 157 provides that letters testamentary, of 
 guardianship, of administration with the will annexed, and 
 the like, may, in a proper case, be granted to trust 
 Companies, the only exception being that of simple letters 
 of administration to which, in a like case, the Public Ad- 
 ministrator is entitled. 
 
 Upon the appointment of a trust company as executor, 
 the Court does not require the filing of a bond for the 
 faithful performance of its duties as in the case of an 
 individual, but the capital stock, property, and effects of 
 such trust company shall be held liable therefor, and the 
 debts due by said corporation as executor, administrator, 
 guardian, trustee, committee, or depositary shall have the 
 preference. Power, however, is given the courts to re- 
 quire trust companies to give security, and upon their 
 failure so to do the court is empowered to remove such 
 trust company from the exercise of such trust. 
 
 They may be required to furnish statements and 
 accounts as executor, administrator, guardian, trustee, 
 etc., in the same manner as a natural person. 
 
 " The capital of every such corporation shall be invested in 
 bonds and mortgages on unincumbered real property in this 
 State worth at least double the amount loaned thereon, or in 
 the stocks or bonds of this State, or of the United States, or 
 
100 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 of any county, or incorporated city of this State duly authorized 
 by law to be issued. 
 
 " The moneys received by any such corporation in trust 
 may be invested in its discretion in the securities of the same 
 kind in which its capital is required to be invested, or in the 
 stocks or bonds of any State of the United States, or in such 
 real or personal securities as it may deem proper. No such 
 corporation shall hold stock in any private corporation to an 
 amount in excess of ten per cent, of the capital of the corpora- 
 tion holding such stock." 
 
 Interest must be paid on all sums of money over one 
 hundred dollars collected and received by such corpora- 
 tion acting as executor, administrator, guardian, trustee, 
 receiver, etc., of any court, or in any fiduciary capacity 
 under such appointment, or as a depositary of moneys 
 paid into court at a rate of not less than two per cent, per 
 annum, until the money so received shall be expended or 
 distributed. All of such interest moneys which are not 
 collected annually shall be added to the principal, and 
 interest thereon shall be paid. 
 
 " The affairs of every such corporation shall be managed 
 and its corporate powers exercised by a Board of Directors of 
 such number, not less than thirteen or more than twenty-four, 
 as shall, from time to time, be prescribed in its by-Laws. No 
 person can be a director who is not the holder of at least ten 
 shares of the capital stock of the corporation. The persons 
 named in the organization certificate, or such of them respec- 
 tively as shall become holders of at least ten shares of such 
 stock, shall constitute the first Board of Directors, and may 
 add to their number not exceeding the limit of twenty-four, and 
 shall severally continue in office until others are elected to fill 
 their respective places. Within six months from the time 
 when such corporation shall commence business, the first 
 Board of Directors shall classify themselves by lot into three 
 classes, as nearly equal as may be. The term of office of the 
 first class shall expire on the third Wednesday of January 
 
TRUST COMPANIES. l6l 
 
 next following such classification ; the term of office of the 
 second class shall expire one year thereafter ; and the term of 
 office of the third class shall expire two years thereafter. At 
 or before the expiration of the term of the first class, and 
 annually thereafter, a number of directors shall be elected 
 equal to the number of directors whose term will then expire, 
 who shall hold their offices for three years or until their 
 successors are elected. 
 
 " Such election shall be held at the office of the corporation 
 and at such time and upon such public notice, not less than 
 ten days, by advertisement in at least one newspaper, approved 
 by the Superintendent of Banks, published in the city where 
 such corporation is located, as shall be prescribed in the by- 
 laws." 
 
 In case of failure to elect any director on the day named, 
 the directors whose terms of office do not that year expire, 
 may proceed to elect a number of directors equal to the num- 
 ber in the class whose term that year expires, or such number 
 as may have failed of re-election. The persons so elected, 
 together with the directors whose terms of office shall not that 
 year expire, shall constitute the Board of Directors until 
 another election shall be held according to law. Vacancies 
 occurring in the intervals of elections shall be filled by the 
 Board. 
 
 " If default shall be made in the payment of any debt or 
 liability contracted by any such corporation, the stockholders 
 thereof shall be individually responsible, equally and ratably, 
 for the then existing debts of the corporation, but no stock- 
 holder shall be liable for the debts of the corporation to an 
 amount exceeding the par value of the respective shares of 
 stock by him held in such corporation at the time of such 
 default. 
 
 *' For all losses of money which the capital stock shall not be 
 sufficient to satisfy, the directors shall be responsible in the 
 same manner and to the same extent that directors are now 
 responsible in law or equity. 
 
 " Every trust company incorporated by a special law shall 
 
 possess the powers of trust companies incorporated under the 
 ii 
 
1 62 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 general law, and shall be subject to such provisions thereof 
 as are not inconsistent with the special laws relating to such 
 specially chartered company." 
 
 The consolidation or merger of trust companies is pro- 
 vided for by an act which went into effect April 23, 1895. 
 See page 102 State Banks. 
 
 It is true that w*hile trust companies are compelled by 
 law, as stated in Section 160, to pay interest on all sums 
 in their hands held in certain capacities, yet the rate of 
 interest is lower than that paid by savings banks, although 
 the money on deposit in the trust company is subject to im- 
 mediate withdrawal, whereas a savings bank may require, 
 according to its constitution and by-laws and the regula- 
 tions printed in its pass-books, a notice of sixty days. 
 
 The sources of income are much more diversified than 
 in the case of banks. Drawing a large part of their revenue 
 from acting in the different fiduciary capacities for which 
 they are created, and for which services they charge a 
 commission, and being less restricted as to the character, 
 nature, and time of their loans, they can make many 
 which the banks cannot. A very large portion of its 
 loans are upon, or secured by, real estate. In fact, loans 
 upon real estate in the cities are effected, almost exclus- 
 ively, through savings banks, trust and life insurance 
 companies. 
 
 Probably the largest source of income of trust com- 
 panies of New York is acting as the financial agent of 
 corporations. 
 
CHAPTER VIII. 
 
 Safe Deposit Companies Building and Mutual Loan Associations Co- 
 operative Loan Associations Mortgage and Debenture Companies. 
 
 Safe Deposit Companies. 
 
 THESE companies may be aptly called the " warehouses 
 of finance," occupying the same relation to it that storage 
 warehouses do to commerce. 
 
 Article VII. of the State banking laws, which provides 
 for the organization of these companies, states that they 
 may be incorporated by five or more persons for the 
 purpose of taking and receiving upon deposit as bailee 
 for safe keeping and storage jewelry, plate, money, specie, 
 bullion, stocks, bonds, securities, and valuable papers of 
 any kind, and other valuable personal property, and guar- 
 anteeing their safety upon such terms and for such com- 
 pensation as may be agreed upon by it and the respective 
 bailors (depositors) thereof ; and to let out vaults, safes, 
 and other receptacles for the uses and purposes of such 
 corporations, by making and filing with the County Clerk 
 of the County, where the same may be located, and the 
 Superintendent of Banking, a certificate similar to that 
 required of other corporations organized under the bank- 
 ing law. 
 
 The law provides that its capital shall not be more than 
 $1,000,000 nor less than $100,000, except in cities or vil- 
 lages of less than 100,000 inhabitants, where the same 
 shall not be less than $10,000; the term of its corporate 
 existence shall not exceed fifty years ; it shall not com- 
 
 163 
 
164 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 mence or transact business, not make any loans or advances 
 on any property left with it for storage or safe keeping, 
 until the whole amount of its capital stock has been paid 
 in ; and until its certificate has been approved by the 
 Superintendent of Banks and duly filed, as in the case of 
 other banking corporations. 
 
 Its affairs shall be managed by not less than five or 
 more than thirteen directors, who shall be stockholders, 
 and a majority of whom shall be citizens of this State, 
 which directors shall, after the first year, be annually 
 elected at the time and place prescribed by its laws, 
 notice of which shall be published ten days before the 
 election in a newspaper in the place where its business is 
 conducted. 
 
 The directors may make such by-laws as they shall deem 
 proper for the management, disposition of the stocks, 
 property, and business affairs of the corporation ; pre- 
 scribing the duties of officers and employees, the manner 
 of the appointment and election of all officers, and for 
 carrying on all kinds of business within the objects and 
 purposes of the corporation. 
 
 There shall be a President, to be selected from among 
 the directors, and such subordinate officers as the by-laws 
 may designate, who may be appointed or elected. The 
 Board may require of the officers and employees of the 
 company such security or bonds for the faithful perform- 
 ance of their duties as it may deem necessary. 
 
 The stockholders shall be jointly and severally liable 
 for all debts due and owing by the corporation to an 
 amount equal to the par value of their stock therein over 
 and above such stock, to be recovered of the stockholders 
 who are such when the debt is contracted or the loss 
 or damage sustained, or of any subsequent stockholder. 
 Any stockholder who may have paid any demand against 
 such corporation either voluntarily or by compulsion shall 
 have a right to resort to the rest of the stockholders who 
 
SAFE DEPOSIT COMPANIES. 165 
 
 are liable to contribution ; and the dissolution of the cor- 
 poration shall not release or affect the liability of any 
 stockholder which may have been incurred before disso- 
 lution. 
 
 If the rent due for any safe or box shall remain unpaid 
 for three years, the company may cause to be sent to the 
 person in whose name the safe or box stands, a written 
 notice in a registered letter, directed to him at the address 
 recorded on its books, notifying him that if the rent due 
 is not paid within sixty days, then it will cause the said 
 safe or box to be opened in the presence of its president, 
 secretary, or treasurer, and a notary public not in its em- 
 ploy, and the contents thereof to be taken therefrom, to 
 be sealed by the notary in a package upon which he shall 
 distinctly mark the name and address of the person in 
 whose name the same may stand upon the books of the 
 company, and the estimated value thereof, and the pack- 
 age so sealed and addressed, when marked for identifica- 
 tion by the notary, will be placed by him in one of the 
 general safes or boxes of the corporation. Upon the ex- 
 piration of sixty days from the date of mailing such notice, 
 if such rent is not then paid, the company may itself pro- 
 ceed and direct the notary to act as above, after doing 
 which his proceedings shall be fully set out by him in his 
 own handwriting and under his official seal in a book to 
 be kept by the corporation for that purpose. 
 
 The capital of these companies, when merely used as a 
 place for the storage of valuables, is not so much a matter 
 of importance as the character of the precautions taken to 
 avoid allowing any one not entitled having access to the 
 boxes or safes, the kind of identification required, the fact 
 that its walls are fire- and burglar-proof, as none of these 
 companies have sufficient capital to make good the loss of 
 valuables which the loss of the contents of one safe might 
 entail. 
 
 Each box or safe holder is furnished by the company 
 
1 66 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 with a box or safe, and the key or combination to it, and 
 is made known to the outer and inner doorkeepers. He 
 is always given a password, by the use of which he can 
 secure admittance, if not otherwise recognized by the 
 doorkeepers. The safes and boxes are arranged in rows 
 one above another on the walls and in the middle of a 
 large fire-proof vault, the entrance to which is guarded by 
 heavy iron bar doors ; the windows, where there are any, 
 are guarded in the same way. In this vault, at conven- 
 ient places, are cages made of iron, in which subscribers 
 may go and lock themselves in, no one from the outside 
 except an attendant being able to enter, and there cut 
 their coupons, examine their securities, etc., in absolute 
 safety. After a subscriber leaves one of these cages, a 
 trusted employee enters the same and makes a careful 
 search to see if the subscriber has left any paper or thing 
 of value, and if he has, the same is taken and put in charge 
 of the proper officer, who returns the same to the sub- 
 scriber. * 
 
 It is not only much safer and more secure to keep val- 
 uables in the safe and boxes of these companies than in 
 safes at an office or residence, but oftentimes more con- 
 venient. 
 
 The location of the company is a controlling element in 
 the charges made by it. There is no uniform charge by 
 all companies for the same size safe or box. In each 
 company the rent is regulated by the size of the safe or 
 box rented. 
 
 Nearly all men of means have their safes and boxes in 
 one or more of these companies, and when their families 
 go away from home send their jewels and silver to be 
 stored ; and even when they are home the family jewels, 
 when not in actual use, are so deposited for safe keep- 
 ing. 
 
 In regard to consolidation see page 102, State Banks. 
 
BUILDING AND MUTUAL LOAN ASSOCIATIONS. l6/ 
 
 Building and Mutual Loan Associations. 
 
 (Commonly called Building and Loan Associations.) 
 
 The very large amount of money invested in these asso- 
 ciations, which in 1893 in the United States was about 
 $900,000,000, $37,285,173 of which was in the State of 
 New York, and $25,000,000 in the State of New Jersey, 
 together with their rapid growth and wide spread, require 
 a somewhat lengthy statement of their objects and aims, 
 which, while they differ slightly in individual cases, are, 
 taken broadly, the same. 
 
 In New York these associations are organized, under 
 Article V. of the Banking Laws of the State of New York, 
 1892, which defines the purpose for which they are created 
 to be: 
 
 " The accumulation of a fund for the purchase of real prop- 
 erty, the erection of buildings, the making of improvements on 
 lands, the payment of encumbrances thereon, and to aid its 
 members in the accomplishment of all or any of the above ob- 
 jects, and the accumulation of a fund to be returned to its 
 members who do not obtain such advances when it shall 
 amount to a certain sum per share, to be specified in the cer- 
 tificate of incorporation." 
 
 The method by which these aims are sought to be ac- 
 complished perhaps demand some explanation. 
 
 The basis of these associations is that of a co-operative 
 savings institution, in which each member has like privi- 
 leges and obligations with each other member, according 
 to the series and number of shares held by him. There 
 is, however, one marked difference between the plan of 
 saving followed by these associations and the general 
 method pursued, and that. is, while all savings are volun- 
 tary in the beginning, after a subscriber begins saving by 
 the plan adopted by these associations, the continuance 
 of such savings becomes compulsory to a certain extent, 
 that is, to as great an extent as the infliction of penalties 
 
1 68 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 in the shape of fines, and either entire or partial forfeiture 
 of the amounts previously paid in can make them so, but 
 while the law gives the association the right in its by-laws 
 to provide for absolute forfeiture, this right is rarely ever 
 exercised. Some of the associations provide after notice 
 of thirty days payments may cease, and the amounts 
 already paid in, with such interest as the Board of Man- 
 agers may allow, will be paid to the withdrawing sub- 
 scriber, after which all penalties and forfeitures cease. 
 By the ordinary methods of saving one can continue or 
 discontinue his savings as he pleases. Of course, if it 
 becomes desirable to discontinue the payment of the 
 monthly installments known as dues, it is generally possi- 
 ble for the subscriber to sell his right in past savings, 
 which are represented by the shares standing in his 
 name. 
 
 The method of accumulation of the fund is this: The 
 association is composed of subscribers, to each subscriber 
 is issued such number of shares as he is willing to pledge 
 himself to pay for until they obtain a given value, gen- 
 erally $200, by the payment of a monthly installment of 
 $i on each share. Obviously it would take, in the absence 
 of interest on the money so paid in, 200 months to bring 
 these shares up to that value, but the earning capacity of 
 money, properly invested, is such that it has been found 
 that, instead of taking 200 months, it will probably not 
 take more than 120 months, or ten years, for these shares 
 to reach their face value of $200. In this time, ten years, 
 instead of paying in $200 per share, the subscriber has 
 only paid in $120, and the $120 so paid in has earned the 
 additional $80 to bring his shares up to their face value. 
 
 In order to become a subscriber of such association it is 
 necessary to enter into a contract with the association to 
 pay subscriptions on a stated day each month, or suffer 
 certain penalties and forfeitures. 
 
 The profit of the subscriber, either in case he becomes 
 
BUILDING AND MUTUAL LOAN ASSOCIATIONS. 169 
 
 a borrower from the association or otherwise, is solely in 
 the fact that at the end of a given time he receives back 
 the money he paid into the association, plus such interest 
 as it may have earned and his proportion of the forfeitures 
 and penalties inflicted upon defaulting subscribers. 
 
 The holder of each share is entitled to borrow from the 
 association out of the* moneys which it may have on hand 
 to loan, on acceptable real property, either improved or 
 to be improved under the direction of the association, a 
 sum equal to the face value of the shares held by him, 
 but on the further condition that he must pay a premium, 
 generally not less than 50 cents a share, for securing such 
 loan, beyond the legal rate of interest, which he is to pay 
 for the use of the money advanced. Some of the com- 
 panies also permit a member who has not already bor- 
 rowed to build or acquire property, to borrow for other 
 purposes than acquiring property at the legal rate of 
 interest, on the deposit of his shares as collateral, to the 
 extent of 90 per cent, of the amount then paid in on such 
 shares. In a prominent company, with which the writer is 
 acquainted, the members availed themselves of this priv- 
 ilege to the extent of $50,000 during the depression of 
 1893. 
 
 The by-laws of many associations prescribe that the 
 funds in hand to be loaned shall at stated times be put up 
 and bid for, and the same loaned to the person bidding 
 the highest rate of interest, and at the same time offering 
 satisfactory security, but this plan is now being quite 
 generally abandoned in favor of what is known as the 
 " gross premium serial plan," by which a certain premium 
 per share is charged. 
 
 The theory and principle upon which loans are made to 
 the subscribers are that all the subscribers will not wish 
 to borrow at the same time, and therefore that the money 
 of those who do not desire to borrow may be loaned to 
 those who do. 
 
I/O PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Article V. of the Banking Laws of the State of New 
 York prescribes that building and mutual loan corpora- 
 tions may be organized by not less than nine persons for 
 the purposes before stated, by making, acknowledging, 
 and riling a certificate of incorporation setting forth : 
 
 1. The name of the corporation. 
 
 2. The location of its principal business office. 
 
 3. When its regular meetings shall be held, and how 
 special meetings may be called. 
 
 4. What shall be a quorum to transact business at its 
 meetings. 
 
 5. How members shall be admitted, and their qualifi- 
 cations. 
 
 6. What officers, directors, or attorneys of the corpora- 
 tion there shall be, and how and when chosen. 
 
 7. The duties of such officers, directors, or attorneys, 
 and how removed or suspended from office. 
 
 8. The names of the persons who shall be such officers 
 and directors for its first year, and until others are chosen 
 or appointed in their places. 
 
 9. The entrance fee of new members and new shares. 
 
 10. The amount of each share. 
 
 11. The monthly or weekly dues per share. 
 
 12. The redemption fee on shares on which advances 
 shall be made. 
 
 13. The fees to be paid on the transfer of shares. 
 
 14. The penalties for non-payment of dues or fees, 
 or other violation of the provisions of the certificate. 
 
 15. The manner of redemption of shares by advances 
 made thereon. 
 
 1 6. The mortgage security to be taken on such ad- 
 vances, and how the same may be changed. 
 
 17. The manner of the transfer or withdrawal of 
 shares. 
 
 1 8. The manner of investing funds not required for ad- 
 vances on shares. 
 
BUILDING AND MUTUAL LOAN ASSOCIATIONS. I/I 
 
 19. The qualification of voters at its meetings and the 
 mode of voting. 
 
 20. The ultimate amount to be paid to the owners of 
 unredeemed shares. 
 
 21. The manner of altering or amending the certificate 
 of incorporation. 
 
 22. Such other provisions not inconsistent with law as 
 shall be necessary for the convenient and effective trans- 
 action of its business. 
 
 This certificate must be approved by the Superintendent 
 of Banks, and filed in the office of the Clerk of the County 
 in which the principal office of the corporation is located. 
 A certified copy must also be filed with the Superin- 
 tendent of Banks, after which the subscribers thereto and 
 their successors shall become a corporation by the name 
 specified in said certificate. 
 
 The directors may demand from the members and 
 stockholders the sums of money subscribed for at such 
 times and in such installments as the certificate of incor- 
 poration shall prescribe, under penalty of forfeiting the 
 shares of stock subscribed for and all previous payments 
 made, if payment is not made within sixty days after per- 
 sonal demand or notice published for six successive 
 weeks in the newspaper published nearest to the principal 
 place of business of the corporation. 
 
 The association may borrow money for temporary pur- 
 poses not inconsistent with the objects of this organiza- 
 tion, but no such loans shall be of longer duration than 
 two years, nor shall its indebtedness for money so bor- 
 rowed at any one time exceed one fourth of the aggregate 
 amount of its shares and parts of shares and the income 
 actually paid in and received. No loan shall be made to 
 any member or stockholder exceeding in amount the par 
 value of the capital stock subscribed for by said member. 
 
 Parents and guardians may hold stock for their minor 
 children or wards, provided the cost of such shares be 
 
1/2 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 defrayed from the personal earnings of such children or 
 wards, or gifts from persons other than their parents. 
 
 Dividends from the earnings shall be payable as pre- 
 scribed in the articles of incorporation. 
 
 " No holder of redeemed shares shall claim to be exempt 
 from making the monthly or other stated payments provided 
 in the certificate of incorporation on the ground that by rea- 
 son of losses or otherwise the corporation has continued 
 longer than was originally anticipated, whereby the payments 
 made on such shares may amount to more than the amount 
 originally advanced, with legal interest thereon ; nor shall the 
 imposition of fines for non-payment of dues or fees or other 
 violation of the certificate of incorporation, nor the making of 
 any monthly payment required by the certificate of incorpora- 
 tion, or of any premium for loans made to members, be 
 deemed a violation of the provisions of any statute against 
 usury. 
 
 " All the shareholders of any such corporation shall be 
 individually liable to the creditors to an amount equal to the 
 amount of stock held by them respectively for all debts con- 
 tracted by it. The directors or other officers of every such 
 corporation shall be personally liable for any fraudulent use, 
 disposition, or investment of any moneys or property belong- 
 ing to it, or for any loss which shall be incurred by any invest- 
 ment made by any such directors or officers, other than such 
 as are mentioned in, and authorized by, this article ; but no 
 director or other officer shall be so liable unless he authorized, 
 sanctioned, approved of or made such fraudulent use, disposi- 
 tion, or investment." 
 
 The shares held by the members and stockholders of 
 every such corporation shall be exempt from sale on exe- 
 cution for debt to an extent not exceeding $600 in such 
 shares at their par value. 
 
 " Any existing corporation formed solely for the purposes 
 mentioned in this article, or any of them, may, by a vote of 
 the persons holding a majority of the voting shares of stock 
 
CO-OPERATIVE LOAN ASSOCIATIONS. 1/3 
 
 of such corporation at any regular meeting after this article 
 shall take effect, become entitled to the benefit of this article 
 on complying with Section 170 of this chaper, or such por- 
 tions thereof as have not been previously complied with." 
 
 The consolidation or merger of Building and Mutual 
 Loan Associations and Co-operative Loan Associations 
 is provided for by " An Act to Amend the Banking 
 Law," which became a law April 23, 1895. See State 
 Banks, page 102. In the case of these associations the 
 act provides that dissenting shareholders may demand 
 cancellation of their stock or liquidation of their in- 
 debtedness, the value of which stock, or the amount of 
 which indebtedness is to be determined by three ap- 
 praisers, to be appointed by the Supreme Court of the 
 district in which the county of domicile of the corpora- 
 tion is located, upon application made by such stock- 
 holders upon eight days' notice to the corporation, within 
 sixty days after merger. 
 
 Co-operative Loan Associations. 
 
 These associations may be organized by not less than 
 fifteen persons. 
 
 The objects sought are practically the same as those of 
 Building and Mutual Loan Associations. 
 
 A certificate of organization must be filed with the 
 Superintendent of Banks at Albany, and a copy with the 
 County Clerk of the County where the principal office of 
 such Company is located, which certificate must be ap- 
 proved by the Superintendent of Banks before the sub- 
 scribers and their successors shall become a corporation 
 by the name specified. 
 
 The officers of such association shall be a President, 
 Vice-President, Treasurer, and Secretary, all of whom 
 shall be ex-officio members of the Board of Directors, 
 which Board shall consist of not less than nine members, 
 exclusive of ex-officio members. 
 
1/4 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 By-laws shall be adopted prescribing the terms of 
 office, the duties and compensation of officers, the time 
 of their election, and of periodical meetings of the officers 
 and shareholders, how special meetings may be called 
 regulating the due conduct of the business of the corpora- 
 tion, defining the duties of its officers and committees, 
 the mode of determining and declaring the withdrawing 
 value of shares, and making such other regulations in 
 regard to the transaction of the business of the corpora- 
 tion as are not inconsistent with law. 
 
 The Board of Directors shall each year determine the 
 compensation of the Treasurer and Secretary, and they 
 may appoint and remove at pleasure an attorney for the 
 corporation. 
 
 The capital stock, not to exceed one million dollars, 
 divided into shares of the matured value of two hundred 
 dollars each, shall consist of the accumulated savings of 
 its members which it holds. The total number of out- 
 standing shares at any one time shall not exceed ten 
 thousand. The shares shall be issued in yearly or half 
 yearly series, and at such times as shall be prescribed by 
 the by-laws. No shares of a prior series shall be issued 
 after the issuing of shares of a new series. No person 
 shall hold more than ten unpledged or more than twenty 
 pledged shares in any one series. 
 
 Savings paid to the corporation upon shares shall be 
 called dues. At or before each stated monthly or semi- 
 monthly meeting of the Board of Directors, each share- 
 holder shall pay to the board or a committee thereof, one 
 dollar dues upon each share of stock held by him until 
 the share reaches the value of two hundred dollars, or is 
 withdrawn, cancelled, or forfeited. Payment of dues on 
 shares of each series shall commence from its issue. 
 Fines may be imposed and collected, not exceeding 10 
 per cent, for each month in arrears, for every dollar of 
 dues or interest which a shareholder shall refuse or neglect 
 
CO-OPERATIVE LOAN ASSOCIATIONS. 175 
 
 to pay at the time it is due. An entrance fee may also 
 be charged, not exceeding twenty-five cents on every share 
 of stock issued by the corporation. 
 
 Unlike in the case of a building and loan association, the 
 law prescribes that a member may withdraw the accumu- 
 lations upon his share after one month's written notice to 
 the Secretary, which withdrawing shareholder shall be 
 paid the withdrawal value of his share as prescribed by 
 the by-laws at the last distribution of profits before the 
 notice of withdrawal, together with all it has paid since 
 such distribution, and such interest on the value of the 
 shares at the time of the last distribution, and on the dues 
 thereafter paid, as the by-laws shall determine, less any 
 fines unpaid and a proportionate share of any unadjusted 
 loss ; but not more than one half of the receipts of the 
 corporation, and when the corporation is indebted on 
 matured shares, not more than one third of such receipts 
 shall be applicable to the payment of withdrawing share- 
 holders. Withdrawing shareholders shall be paid in the 
 order in which their notices of withdrawal were filed with 
 the Secretary. The board of directors may in their dis- 
 cretion, under rules made by them, retire the unpledged 
 shares of any series at any time after four years from the 
 date of their issue by enforcing withdrawals of the same ; 
 but the shareholders whose shares are to be retired shall 
 be determined by lot, and they shall be paid the full value 
 of their shares, less all fines and their proportionate part 
 of any adjusted loss. 
 
 Upon an unpledged share of a given series reaching the 
 value of two hundred dollars, all payment of dues thereon 
 shall cease, and the holder be paid out of the funds of 
 the corporation $200 therefor, with such rate of interest 
 as shall be determined by the by-laws from the time the 
 board of directors shall have declared such shares to be 
 matured until paid ; but at no time shall more than one 
 third of the receipts of the corporation be applicable to 
 
176 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 the payment of matured shares without the consent of the 
 board of directors, who shall also determine the order 
 of the payment of matured shares. 
 
 At each monthly stated meeting, immediately following 
 the receipt of dues and interest, the board of directors 
 shall offer to members of the corporation desiring to bor- 
 row, all accumulations applicable to that purpose, in sums 
 of two hundred dollars, the value of a matured share, or 
 a multiple thereof, or the fractional parts of one third of 
 one half thereof. If more than one member desires to 
 borrow, the right to the loan shall be determined by an 
 open bidding of a premium per share, and the member 
 bidding the highest premium shall be entitled to the loan 
 upon giving proper security ; and the amount of the 
 premium paid shall be deducted from the sum loaned at 
 the time of loaning, and the receipt thereof shall not be 
 deemed a violation of the usury laws. No member can 
 borrow a larger sum than shall be equal to the matured 
 value of the shares held by him. A borrowing member, 
 for each share or fractional part thereof borrowed upon, 
 shall, in addition to the dues on his shares, pay monthly 
 interest on his loan at the rate of six per cent, per annum, 
 or such lower rate as the by-laws shall name, until the 
 shares borrowed upon reach the matured value of two 
 hundred dollars each, or the loan is repaid ; and when 
 such matured value is reached, the loan upon it shall be 
 paid out of the share, and the proper surrender and 
 acquittances be made. See last paragraph Building and 
 Mutual Loan Associations. 
 
 Mortgage and Debenture Companies. 
 
 These companies are of comparatively recent growth 
 and are a necessity of the unnaturally rapid development 
 of our Western agricultural sections by persons who, with- 
 out the aid afforded by these companies, would be unable to 
 retain their holdings, which often in the first instance were 
 
MORTGAGE AND DEBENTURE COMPANIES. 177 
 
 simply pre-empted Government lands, the holders owning 
 little more than the land itself, and not having the means 
 with which to erect suitable buildings thereon and to pur- 
 chase the implements required for its cultivation. Settlers 
 of this class usually, in order to procure capital, mortgage 
 their lands as soon as they have any commercial value, 
 which, of course, is as soon as they can produce anything 
 which can be marketed. 
 
 Holders of the mortgages on such lands, as a rule, reside 
 in the money centres of our country, which are mainly on 
 the Atlantic seaboard, and can make no personal examina- 
 tion of the land on which they loan. This work falls 
 within the province of the mortgage companies, who, 
 through their agents, make examinations of the lands, 
 extend the loans, and then through their representatives, 
 principally in the East, sell the mortgages to investors. 
 
 The farming lands of several Western States are mort- 
 gaged to more than half of their appraised value, which 
 mortgages have been in no small degree negotiated 
 through mortgage and debenture companies. 
 
 When properly conducted, their loans carefully chosen, 
 and the company economically managed, the mortgages 
 of such companies certainly offer a fair investment, and 
 companies of this description are of great use in bringing 
 together the borrower and the lender in a way quite 
 impossible without their aid. 
 
 Each company, as a rule, confines itself principally to a 
 given area, frequently taking the name of the State or 
 section where its loans are located. 
 
CHAPTER IX. 
 
 \ 
 
 Private Bankers Brokers Stock Brokers Note Brokers Puts and Calls. 
 
 Private Bankers. In an estimate of the financial 
 strength of a great city, or a country, few of us, our minds 
 filled with the enormous aggregation of capital of banks, 
 take into consideration what an important element is the 
 private banker, who, practically unrestricted as to his deal- 
 ings, investments, and ventures, save by the consideration 
 of receiving good security for his advances and avoiding 
 placing his own or his clients' funds where they may be 
 insecure, or regained only at expense and loss of interest, 
 undertakes and promotes enterprises which National and 
 State banks, by law, are prohibited from doing. Still less 
 do we consider that while the aggregate capital and sur- 
 plus of the National and State banks of New York City, 
 clearing through the New York Clearing House, for 
 instance, does not exceed perhaps $134,000,000, that 
 of the private bankers more numerous 't is true, more 
 than trebles this amount, and while $5,000,000 is the 
 largest capital of any of our banks, there are certainly 
 half a dozen or more private banking firms in the city of 
 New York whose individual capital is not less than 
 $10,000,000. 
 
 Private bankers, like banks, receive money from one 
 person and loan it to another, sometimes paying interest 
 on the money which they receive, and always charging 
 interest on that which they loan ; the difference between 
 the two being their profit. 
 
 178 
 
PRIVATE BANKERS. 
 
 By far the larger portion of their business is in the 
 furtherance of new enterprises, and the reorganization of 
 old, the forming of companies, the consolidation of already 
 existing corporations or businesses, the selling and buying 
 of exchange, and the salp and issuance of letters of credit, 
 certificates of deposit, etc. 
 
 Private bankers in the United States have all the 
 privileges granted to State banks generally, but are not 
 subject to the same restrictions excepting when they issue 
 circulating notes, which they can do under the laws of 
 most States, then they become subject to the same restric- 
 tions and limitations in that respect as State banks ; but 
 while they possess that right it is rendered of no practical 
 value to them by the National tax of ten per cent, on the 
 circulating notes of other than National banks. 
 
 In England at present, and in this country up to the 
 imposition of the National tax above alluded to, the 
 issuance of circulating notes was a source of considerable 
 revenue. 
 
 The business of banking and promoting, now being 
 generally carried on by the same firms, is usually so inti- 
 mately connected as to be almost inseparable ; most of 
 the larger banking houses deriving the greater part of their 
 incomes from the promotion of various enterprises, by 
 which is meant the furnishing to those enterprises in ex- 
 change for its securities a sufficient amount of money to 
 enable them to begin and continue their operations. 
 
 The reorganization of various properties also furnishes 
 a large field of usefulness, and offers very handsome 
 profits and commissions. 
 
 They enter into contracts with companies, by which they 
 agree to advance them money to a given amount, receiv- 
 ing for such advances the bonds and stock of such com- 
 panies at a given price. These they dispose of to their 
 clients and customers. On such transactions they make 
 two profits, one being the interest on the money loaned, 
 
180 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 and the other the advance in price on the securities, or a 
 commission on the sale. 
 
 To enumerate all the sources of income of private 
 bankers is to name the various businesses of the country, 
 in all of which they are more or less directly interested, 
 and which they assist and are assisting daily. 
 
 Perhaps no great industry owes more to their generous 
 assistance than do the railroads, whose securities are 
 largely owned and almost exclusively placed by them ; 
 and when it is borne in mind that the railroad interests of 
 the United States represent some nine billion of dollars, 
 or nearly one fifth of the whole wealth of the country, and 
 but for their existence vast tracts which now have great 
 value would be comparatively valueness, it may be seen 
 to what an extent the development of the West in par- 
 ticular is due to the foresight and enterprise of the private 
 banker. 
 
 But vast interests and values are perhaps quite as much 
 affected by the maintenance of existing enterprises as by 
 the creation or extension of new ones, and oftentimes the 
 reorganization of a railroad is as important to the interests 
 of the section which it traverses as the building of a new 
 road would be to another section. 
 
 The. consolidation of properties either friendly or an- 
 tagonistic, for the purpose of eliminating competition, 
 reducing expenses, or increasing earnings, is a source of 
 almost constant employment for the larger houses. 
 
 In the organization of a company the method of pro- 
 cedure is something like this : We will take a railroad 
 company, for instance. Certain persons desiring to build 
 a road from one point to another, after making inquiries 
 as to the probable business which can be secured, make 
 estimates as to the cost of the right of way in many 
 instances a large portion of which can be secured without 
 cost, the land being given to the company either by the 
 persons whose lands will be traversed, in the hope of 
 
PRIVATE BANKERS. l8l 
 
 making the remainder more valuable, or grants are made 
 by the State, county, and in many instances by the 
 National government, which has given millions of acres 
 to the transcontinental lines ; plans are then submitted to 
 some railroad contractor, who makes an estimate as to the 
 cost of construction of such a road as is desired, a rough 
 survey having first been made. These plans together with 
 the contractor's estimates are all submitted to the bank- 
 ing house, which if it agrees to take up the matter 
 perfects the organization of the company, by procuring 
 the passage of an act to that effect by the State or States 
 in which it is located, and after the filing of its certificate 
 of organization, the payment of such fees and taxes as are 
 necessary to complete such organization, proceeds through 
 the directors and stockholders to issue its mortgage 
 bonds and stock, of which it retains or subsequently 
 receives a certain portion as security for advances which 
 they agree to and do make. These securities they then 
 place among their customers. The agreement frequently 
 is that they will only supply the company with such sums 
 as they can realize from a sale of its securities, for which 
 sale they charge a commission. The securities issued by 
 the company in excess of the amount necessary to procure 
 these advances are retained by it in its treasury. 
 
 In the reorganization of companies the usual method 
 is for the security holders to deposit with some trust 
 company, usually named by the bankers effecting the re- 
 organization, their securities. After a sufficient propor- 
 tion have been deposited to insure the success of the 
 reorganization, and after the completion of the necessary 
 preliminaries, the depositors receive securities of the new 
 company at the rate agreed upon in the reorganization 
 agreement. 
 
 When a property is put in the hands of a receiver, 
 a reorganization is about the only thing to be done, as the 
 company is bound to be reorganized either by the pur- 
 
1 82 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 chaser or the creditors, generally the bondholders. These 
 reorganizations are usually very profitable to the bankers 
 consummating them. 
 
 Brokers. There are so many kinds of brokers, in fact, 
 as many kinds as there are commodities or paper repre- 
 senting values to be sold and purchased, that it is impos- 
 sible to speak of them all. Our remarks will therefore be 
 confined to Stock Brokers and Brokers of Commercial 
 Paper, commonly known as Note Brokers. 
 
 Stock Brokers. The principal places of business of the 
 stock broker in New York is the Stock Exchange, and 
 the Consolidated Exchange, where most active stocks are 
 dealt in, but in addition to these stock brokers, members 
 of one or both exchanges, there are a large number who 
 belong to no exchange, and who deal largely in street rail- 
 way and gas stocks, and State, municipal, and county 
 bonds and warrants, called " Investment Securities.'* 
 The number of brokers in New York engaged in the sale 
 of securities is certainly several thousand. 
 
 While most of the banking houses in New York do 
 what is known as a " banking and brokerage business," 
 there are a great many brokers whose business is solely 
 confined to the buying and selling of stocks and bonds ; 
 and some trade almost wholly in the securities of certain 
 properties. 
 
 A membership in one or more of the principal ex- 
 changes of the country is now considered a pre-requisite 
 to success, and there are comparatively few of the chief 
 houses who do not have memberships in several. In 
 New York a membership in the " New York Stock Ex- 
 change " is indispensable to the carrying on of a large 
 stock-brokerage business, although some of the brokers 
 on the " Consolidated Stock and Petroleum Exchange " 
 do considerable business. 
 
 Stock brokers rise in various gradations from the " curb- 
 stone " broker who buys and sells stock on the curb-stone, 
 
BROKERS. 183 
 
 the broker who holds forth in some of the rooms known 
 by various names, but better known to the public as 
 " bucket " shops, until you finally come to the opulent 
 Stock Exchange man who drives to his office in his car- 
 riage, and buys and sells stocks by the thousand or ten 
 thousand shares. 
 
 That New York is not suffering from a dearth of stock 
 brokers may be inferred from the fact that the Stock 
 Exchange furnishes noo, the Consolidated as many more, 
 and they seem, during a busy market, literally to spring 
 out of the curb of New Street. 
 
 There can scarcely be less than six or seven thousand 
 men engaged daily in New York in various ways in the 
 increasing or decreasing of the prices of various stocks and 
 bonds, especially if we include the brokers who, belonging 
 to no exchange, make a specialty of State, city, and county 
 bonds, which are rarely, if ever, dealt in on the exchanges. 
 
 Many of the commission houses, brokers who, for a com- 
 mission, buy and sell for others, make it a part of their 
 articles of partnership that the members of their firm shall 
 not speculate on either their individual or firm account. 
 There are many good reasons for this. The first is that the 
 firm may not be injured by the speculation of its mem- 
 bers, and find itself suddenly embarrassed by losses of 
 which it had no knowledge ; and the second is that mem- 
 bers of said firm shall be in a position to advise their 
 customers disinterestedly, which, of course, they might 
 not and probably would not be if they were themselves 
 large buyers or sellers of stocks, the price of which they 
 desired to see increased or decreased ; and, thirdly, this 
 rule being known, the customers would have greater faith 
 in and reliance upon the advice given them. For the 
 same reasons, and the additional one that speculation at 
 times offers great temptation to dishonesty and the 
 betrayal of trusts, the clerks of many houses are prohib- 
 ited from speculating. 
 
1 84 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 A brief description of the way in which business is 
 done in a well conducted office perhaps would not be out 
 of place. We will confine it to the office of a member of 
 the Stock Exchange. The first thing in the morning, is 
 the opening of the mail to see what orders have been sent 
 in. Such of these as are not to be attended to by the 
 members of the firm are assigned to other brokers. The 
 cashier reports the condition of the firm's finances bal- 
 ances in banks, and what loans, if any, are needed. Nego- 
 tiations often are had simply by telephone message, and 
 the loan arranged, it being understood, of course, that 
 proper security will be deposited to cover it. The open- 
 ing of the Exchange at ten o'clock finds all brokers with 
 any business to transact on the floor, and with the excep- 
 tion of a short interval for lunch, although many brokers 
 do not allow themselves even this respite, they usually 
 remain there till three o'clock, when business on the floor 
 is over for the day. From ten to three, however, the 
 broker has been in frequent communication, by messenger 
 and telephone, with his office. His duties on the floor of 
 the exchange, while described at greater length in the 
 article on the New York Stock Exchange, are, briefly, to 
 execute the orders of his customers. 
 
 The charge made for the buying or selling of a stock is 
 one eighth of one per cent, of the face value of such stock. 
 All the shares on the Stock Exchange, with two excep- 
 tions, being of the face value of one hundred dollars a 
 share, and these two are fifty dollars a share, one hundred 
 shares of one hundred dollars per share is the smallest 
 quantity of stock bought or sold on the Stock Exchange, 
 and in the case of the exceptions just mentioned two 
 shares of fifty dollars each are counted as one, so that not 
 less than two hundred shares of these stocks are dealt in. 
 This represents a par value of ten thousand dollars, one 
 eighth of one per cent, of which would be $12.50. This 
 is the price charged persons not members of the Ex- 
 
BROKERS. 185 
 
 change, but one member may do business for another 
 member at as low a rate as $2 per hundred shares. The 
 penalty for the violation of these rules is fine, suspension, 
 or expulsion from the Exchange, as the Governing Com- 
 mittee may elect. 
 
 In most of the larger offices there are great blackboards 
 with the names of all the principal stocks, cotton, wheat, 
 lard, etc., near which are one or more tickers from which 
 the quotations are taken and written on the board with 
 great rapidity, this of itself occupying the time of one 
 and sometimes more clerks. Standing and seated around 
 the room, intently watching the blackboard, are the cus- 
 tomers of the firm. Many of them have pads in their 
 hands, on which to write their orders, which are handed 
 to clerks, and by them checked and handed to the tele- 
 phone clerk, telegraph operators, or messengers, as the case 
 may be, by whom they are immediately sent or delivered. 
 
 After the Exchange business is over the brokers return 
 to their offices, and the business of the day is written up, 
 the correspondence attended to, etc. 
 
 Some of the principal houses while having as many as 
 three or four Stock Exchange members, do a large share 
 of their buying and selling through other brokers, to con- 
 ceal their identity from their fellow-brokers, a knowledge 
 of which might tend to injure their interests. 
 
 Quite a number of brokers are known as " Specialists." 
 They devote their time to one particular stock, and can 
 always be found at the part of the floor where that stock 
 is traded in. These men, however, do most of their busi- 
 ness for other brokers, and are called " $2' Brokers." 
 
 A very large proportion of the buying and selling of 
 stock is done on margin, and a comparatively small per- 
 centage of outright purchases are made. Some brokers 
 require a larger margin than others, and all brokers require 
 heavier margins on some stocks than on others, while 
 there are stocks which no broker will buy on margin. 
 
1 86 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 The amount of margin required is dependent not alone 
 on the character of the stock, but also on the condition 
 of the money market, and all brokers reserve to them- 
 selves the right to call for more margin. 
 
 As a rule, any of the active stocks which are fairly 
 steady can be bought on a ten per cent, margin. That is, 
 by depositing one thousand dollars with your broker you 
 can buy one hundred shares of stock. In speculating on 
 margin it should be remembered that while the smaller the 
 percentage of margin the greater the number of shares 
 which can be purchased for a given sum, yet, in case of 
 the market going against the speculator, the sooner the 
 margin becomes exhausted, before which event he has 
 either to put up more margin or lose what he has already 
 deposited, whereas the same amount of money represent- 
 ing a larger margin on a smaller purchase would have 
 more than covered the fall, and a later recovery of the 
 price of the stock may leave him a profit. 
 
 Another matter for a speculator to consider is the in- 
 terest charge made by the broker, in purchases on mar- 
 gins, the usual charge being five per cent., and, of course, 
 if your money is earning less it is evidently to your advan- 
 tage not to borrow at a higher rate than your own money 
 is earning. The broker charges the customer interest on 
 the difference between the margin deposited and the 
 amount it takes to buy the stock outright. Thus, if on 
 a purchase of $10,000 of stock selling at par $1000 is de- 
 posited as margin, $9000 more is necessary to complete 
 the purchase ; this the broker either furnishes or becomes 
 liable for, holding the stock as security, and charging his 
 customer interest on the $9000 until the stock is either all 
 paid for or again sold ; and while this amounts to only a 
 little over $1.30 per day, we must not forget that if the 
 stock is held for any length of time it takes quite a sub- 
 stantial slice out of the profits, if it does not entirely 
 absorb them. 
 
BROKERS. IS/ 
 
 But a small proportion of the purchases on the Ex- 
 change are made for investment, most being made for a 
 quick sale, or " turn " as it is called, the purchaser or seller 
 intending to buy or sell as soon as he can make a profit 
 by doing so ; the broker in the event of a profit paying 
 him the difference between the price at which he buys and 
 that at which he sells, less his commissions and interest 
 charges ; or in case of a loss, applying the customer's 
 margin to the payment of such loss, the broker's commis- 
 sions and interest charges. Should the commissions and 
 interest exceed the margin deposited, then the client has 
 to make good the deficiency. 
 
 Where stocks are bought outright and paid for, they 
 are delivered to the purchaser, or held by the broker for 
 him, subject to the owner's order. 
 
 Brokers' offices generally have telegraph and telephone 
 facilities, tickers, and every means of obtaining immediate 
 information in regard to the state of the crops, the finances 
 of the country, and of the world, and everything else that 
 may have an influence on the stock market, and there is 
 scarcely a better informed man as to the material condi- 
 tion of the different parts of the country than the broker, 
 whose success in business is largely due to the correctness 
 of the advice he gives his clients. 
 
 Conditions and circumstances which influence the price 
 of stocks are so numerous as to defy exhaustive state- 
 ment, but a few of the most important will be given. 
 
 First, the condition of the property ; next, the condi- 
 tion of the country from which the company draws its 
 business, whether it is such as to warrant a continuation 
 of the present condition of affairs, and in that connection, 
 of course, must be considered the yield of the section, 
 whether it be an agricultural, mining, or lumber section. 
 Next, the management of the company, the ratio of its 
 earnings to expenses, the presence of competitors, and, in 
 fact, everything that might tend to make it a more profit- 
 
1 88 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 able or a less profitable investment. The general condi- 
 tion of the money market must be considered carefully, 
 and especially in the case of new companies, or those re- 
 quiring assistance, to be procured by the borrowing of 
 money upon their securities ; for when the money market 
 is easy they can place their securities at a better price 
 than if it is tight, but they must in any event, in the case 
 of railroads, have the money to build their tracks or ex- 
 tend their operations. On a tight market they have to 
 sell more stock to secure the same amount of money than 
 in an easy market, or incur a greater obligation, as each 
 share, no matter what price it sells at, is an obligation of 
 the company for the amount written on its face. Another 
 consideration is the class of persons by whom the larger 
 part of the stock is held, whether they are persons who 
 would on a slight " scare " have to relinquish their " hold- 
 ings," as the stock would necessarily decline in price 
 under heavy offerings. 
 
 In the case of companies requiring no such assistance, 
 where the stock is bought for investment, and the prop- 
 erty is well known to be a " dividend payer/' the condi- 
 tion of the money market is of less consequence, as the 
 tightness of money will not to the same degree affect the 
 earning capacity of the company. 
 
 Consolidation of properties nearly always tends to in- 
 crease the price of their securities, unless there is a dis- 
 proportionate issue of securities, because it is assumed 
 that competition is thereby largely eliminated, expenses 
 reduced, rates raised, and net earnings increased. 
 
 Traffic agreements, which are contracts entered into by 
 two or more railroads drawing their business from the 
 same section or sections, by which they agree upon a 
 uniform rate for given services, and a certain apportion- 
 ment of the business, is in effect a consolidation to a cer- 
 tain extent, and always tends to increase the price of the 
 stock of the companies parties to it. These agreements 
 
BROKERS. 189 
 
 have become an absolute necessity in many cases, to 
 avoid bankruptcy of the roads entering into them, com- 
 petition having become so fierce that in many instances 
 they were doing business at absolutely ruinous rates, and 
 a continuation of such competition must result in the 
 ruin of many of the parties concerned. 
 
 Rumors that certain companies will show increased 
 earnings or decreased earnings, that they will fail to 
 declare dividends on certain issues of stock, or that they 
 will declare larger dividends, that they will fail to pay 
 coupons falling due on certain dates, and, in fact, any- 
 thing that will have a tendency to increase or decrease 
 the price of its securities, are diligently circulated for the 
 purpose of affecting the market ; also stories as to the 
 solvency of known large holders of its stocks ; and while 
 the law has done its utmost to punish the circulating 
 false reports, it cannot keep foolish people from becoming 
 frightened or over-sanguine, as the case may be; and 
 many have been the failures caused by the circulation 
 and the heeding of such rumors or " tips," as they are 
 called, many people for the time apparently forgetting 
 that the tips which they are happy in possessing have 
 been purposely given to them with the object of inducing 
 them to do something to the advantage of others. For 
 instance, nothing could be more obviously to the advan- 
 tage of a person " short " of a particular stock, and who 
 naturally wishes to buy it at the lowest price, than the 
 circulation of a report among the holders of that stock, 
 that the receipts of the company showed a falling off, or 
 that a competitor's business had greatly increased, or that 
 it had received concessions prejudicial to the company 
 whose stock he was short of ; and it is a very easy matter 
 to intimate or insinuate this to some friend of the holders, 
 who in repeating the same simply furthers the plans of 
 his friend's enemy. 
 
 The price of stocks is further influenced by the forma- 
 
IQO PRINCIPLES AND PRACTICE OF FINANCE. 
 
 tion of "pools," in which a number of persons "pool'' 
 their interests, join together, for the purpose of buying 
 or selling, and increasing or decreasing, the price of one 
 or more stocks. When the object is to increase the price 
 of a stock, they are called " bull pools," and when the 
 object is to decrease the price " bear pools." Naturally, 
 only persons having large holdings will join in a bull 
 pool, and those short of, or having no, or comparatively 
 insignificant, holdings, in a bear pool. 
 
 The method of operation depends largely upon the 
 stock and whether the pool is a bull or a bear pool. If a 
 bull pool, as much stock as can be is purchased for future 
 delivery. The sellers of this stock generally do not have 
 the amount sold, but expect to be able to purchase the 
 same before the date of delivery at a lower price than the 
 one at which they sold it ; a still hunt is then made by 
 the bulls and as much stock as possible bought, still for 
 future delivery, if possible. The pool now begins to buy 
 up the stock as rapidly as it is offered on the market, the 
 stock becomes scarce and the price advances, bids are 
 made in excess of the amount offered, and the sellers 
 who sold stock which they did not and do not possess, 
 " the shorts," now come in to buy, or " to cover," as it is 
 technically termed, but discover that there is very little 
 or no stock to be had, in which case they have either to 
 buy what little there is to be had, sending the market 
 still higher, or pay the purchasers, " the bulls," the differ- 
 ence between the price at which they agreed to deliver 
 and the price of the stock in the market. The success of 
 a bull pool is dependent upon the ability of the pool to 
 take all or a very large portion of the stock offered, upon 
 the condition of the property during the operation of the 
 pool, and to put the sellers, or shorts, in a position 
 where they are compelled to purchase from the pool at 
 practically the price it chooses to dictate, or at any rate 
 at a price which will leave the bulls a profit after all their 
 
BROKERS. 19! 
 
 holdings have been disposed of. These pools are seldom 
 formed for other than speculative purposes, and seldom 
 have the money to buy all the stock for which they con- 
 tract outright. They generally operate with a stock of 
 medium issue, rather than one of either very large or very 
 small issue, as in one case the stock would probably be 
 too scattered and it would require too much money, while 
 in the other their design, on account of the limited issue, 
 would become apparent at an early stage, and their object 
 defeated. 
 
 A pool is generally managed by one of its members, 
 who has absolute power over the holdings of the others, 
 which are pooled and under his control. As a complete 
 record is kept of all bonds and stocks of every corpora- 
 tion on its books, and while, of course, the entries of 
 transfer do not always show the real owners, still a thor- 
 oughly posted operator can approximately determine what 
 portion of its securities are held for investment and what 
 are being actively dealt in on the exchange, and for ordi- 
 nary purposes only the latter portion need be considered. 
 
 Both the bulls and the shorts will do whatever they can 
 to influence the market in their respective favors. 
 
 A bear pool is formed and controlled in the same man- 
 ner, usually by persons short of a particular stock, who 
 sell stocks, not in their possession, for future delivery and 
 by their constant offerings to sell, seek to reduce the price 
 so that they may be enabled to buy at a lower price than 
 the price at which the stock has been sold. Inasmuch as 
 they have to keep selling to depress the market while they 
 are buying to fill their maturing contracts, as it would 
 never do to have all the contracts mature at the same 
 time, it requires most adroit management, as they must, 
 in order to be successful, sell on the market which they 
 have themselves lowered, and are compelled to keep on 
 hand a much larger amount than they buy in order to 
 make the pool a success. 
 
192 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Note Brokers. 
 
 This is the name usually given to men whose business 
 is procuring the discount of commercial paper, notes. 
 For various reasons there are comparatively few men 
 engaged in this department of finance as compared with 
 the other departments ; and their dealings are largely re- 
 stricted to what are known as outside borrowers, borrow- 
 ers residing outside of the place where the loan is sought, 
 or who desire accommodation from other than their usual 
 banks or lenders, because most business men whose credit 
 is good can nearly always secure all the money they need 
 from the different banks in which they keep their ac- 
 counts, and it is only when a man wants to go beyond 
 this that he puts his paper in the hands of brokers, who 
 usually simply procure its discount by some one else, but 
 sometimes they buy the paper themselves, and either hold 
 it or re-discount it at a lower rate. 
 
 As a rule, however, they are simply middlemen between 
 the borrowers and the lenders, and receive a certain com- 
 mission from the borrower for procuring the discount. 
 
 People who have no regular line of accommodation at 
 one or more banks, or who have exhausted that line and 
 wish to place their notes somewhere else, should consult 
 the note broker. 
 
 Puts and Calls. 
 
 These words are so technical in their meaning as to re- 
 quire special explanation, which is best given by a state- 
 ment of the method by which this business is transacted. 
 Thus : A sells his agreement to B for a certain sum to 
 " put " to him at a given day at the price named in such 
 agreement a stated number of shares of a particular stock, 
 giving B the privilege of calling for the delivery at the 
 time and price agreed upon. 
 
 If the stock in the meantime goes down so that A can 
 purchase the same for a less price than the price at which 
 
BROKERS. 
 
 193 
 
 he agreed to deliver it, B either pays A the difference be- 
 tween the price at which the stock shall be delivered and 
 the price at which the same can be purchased in the 
 market or receives the stock and pays therefor the price 
 agreed upon. In the event of the stock going up, A 
 either delivers to B the stock at the agreed time or price 
 or pays to B the difference between the price at which he 
 
 agreed to deliver the stock and its market price. 
 13 
 
CHAPTER X. 
 
 Exchanges New York Stock Exchange. 
 
 Exchanges. Exchanges are meeting-places for per- 
 sons engaged in the buying and selling or exchanging of 
 commodities or values, or the titles to such commodities 
 or values. 
 
 The exchanges of the present day may differ in degree 
 but not in kind from the guilds of the Saxons, and the 
 meeting-places of the early merchants. Their growth has 
 been so gradual and imperceptible, keeping pace with 
 commerce, but never outstripping it, as to have occasioned 
 but little comment historically ; and while we are in- 
 formed that they were a well established part of the 
 commercial life of the Florentine period, and gradually 
 crept northward as the centre of commerce changed from 
 Southern to Western Europe, still in all the essentials 
 they existed, so soon as a large number of persons met 
 with any regularity at a specified place to exchange their 
 goods. 
 
 To the merchant or broker the exchange occupies in 
 one sense the same relation as the merchant or distributing 
 agent does to the producer and consumer. It is the me- 
 dium through which he is brought in contact with those 
 who desire to sell, and those who wish to buy, and he can 
 consequently either sell or buy as he wishes. The ex- 
 change saves him the trouble and loss of time necessary 
 to ascertain the person with whom he may exchange, just 
 
EXCHANGES. 1 9$ 
 
 as the country merchant saves the farmer the trouble of 
 rinding a purchaser for his wheat or cotton ; and as the 
 country storekeeper brings the manufacturer and the 
 farmer together, so the exchange brings the different 
 merchants together. 
 
 To realize the enormous saving of time and money and 
 the economizing of energy effected by these institutions, 
 let us for a minute suppose the business of a great com- 
 munity conducted without them, and each seller groping 
 around for a buyer, and the buyer searching for a seller. 
 Such a condition would be wholly incompatible with the 
 life of our century. 
 
 All of our cities, even the smaller ones, have their Boards 
 of Trade, and exchanges for the principal commodity 
 dealt in, and even our villages have what to them answers 
 the same purpose, some common meeting-place for buyers 
 and sellers. 
 
 The relative importance of the different exchanges is 
 usually determined by the sales, and naturally in different 
 sections and cities different exchanges become more or 
 less important than in others. Thus, in New York, the 
 Stock Exchange is the most important exchange, owing 
 to the enormous transactions annually effected, while in 
 Western cities exchanges for the sale of produce, and 
 in the larger Southern cities those for the sale of cotton, 
 are the most important. 
 
 In most of the larger cities all the chief trades and 
 businesses have their particular exchanges, where the 
 people interested in those trades meet. 
 
 Outside of a mere mention of the principles of ex- 
 changes in general, it is not within the purview of this 
 work, to deal with any exchanges but those relating 
 particularly to finance ; and as an illustration of the 
 workings of such exchanges, and because it is perhaps 
 the most interesting and generally discussed institution of 
 this kind in our country, we have decided to discuss 
 somewhat in detail 
 
196 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 The New York Stock Exchange. A voluntary un- 
 incorporated association founded in the year 1792, which, 
 after various migrations downtown, settled in 1867 in its 
 present magnificent home at 16 Broad Street. 
 
 There are entrances to the building on three streets, 
 the main one on Broad Street, access to which is had by 
 a flight of marble steps leading into a corridor, on either 
 side of which are elevators running to the upper floors, 
 where the bond room, library, executive offices, and the 
 offices of the clerks of the exchange are situated. These 
 elevators also lead to the Visitors' Gallery, which runs 
 partly round the main hall. On Wall Street, there is an 
 entrance used by brokers, but to a larger extent by sight- 
 seers, who go usually by this ingress to the gallery just 
 mentioned. On New Street there are two entrances, one 
 at the northern and the other at the southern end of the 
 building, which are used exclusively by members, their' 
 clerks, and the employees of the exchange. 
 
 All entrances lead to the " floor " of the Exchange, 
 which is on the level of Wall and New Street, but above 
 that of Broad. This " floor " is a large room almost 
 square, with a sort of a bay-window effect on the Broad 
 Street side, produced by the irregular extension of the 
 hall in that direction. Opposite this is a large board, 
 divided into different colored blocks, which blocks are 
 further subdivided into smaller blocks, each of which, in a 
 short time it will be discovered, discloses a number in the 
 same fashion as an hotel annunciator. The number so 
 disclosed is the number assigned to some broker or firm, 
 and indicates to him that some one wishes to communi- 
 cate with him. The board is in reality an annunciator, 
 and without some such contrivance it would be quite 
 impossible, owing to the noise and confusion, to secure 
 the attention of a broker on the floor. 
 
 Looking down on the crowd of brokers beneath, the 
 scene from the gallery is one which never fails to create 
 
THE NEW YORK STOCK EXCHANGE. 1 97 
 
 a strong impression on the mind, and especially so when 
 the market is active, and there are hundreds of brokers 
 buying and selling. There is audible but one continu- 
 ous roar of voices, no one distinguishable from the rest, 
 although every now and then you may distinguish " five 
 hundred f ths, two hundred Jth," etc. ; the five hundred 
 and the two hundred meaning the number of shares, and 
 the J-ths or Jth representing the fraction of a cent at 
 which the stock is offered, no one deeming it necessary, 
 except in case of an unusual rise or fall in stocks, to state 
 the whole number of cents, as that is presumed to be 
 known by everybody on the floor. Nor is the name of 
 the stock called, the seller or purchaser simply goes to 
 that portion of the room where that stock is dealt in, 
 which place is marked by an iron stand supporting a pla- 
 card on which is printed its name. This, of course, 
 applies merely to the principal active stocks. There are 
 many stocks which are not active stocks, and which are 
 not dealt in to such an amount as to have any separate 
 place assigned to them, but are grouped with a number 
 of other stocks, in which case the broker announces the 
 name of the stock and the price at which he offers the same. 
 
 On busy days, from six to seven hundred brokers are 
 often on the floor at the same moment, some offering and 
 others bidding, waving their arms, gesticulating, and gen- 
 erally trying to attract the attention of some particular 
 person, or rushing about from crowd to crowd, and from 
 stand to stand, endeavoring to fill their orders. 
 
 The fee fixed by the Stock Exchange, which brokers 
 are to charge to persons not members of the Exchange, 
 is one-eighth of one per cent, of the face value of the 
 stock for buying, and the same for selling, so that to buy 
 and sell a stock it costs one-fourth of one per cent. The 
 rate below which no broker is allowed to deal with his 
 fellow-brokers is two dollars a hundred shares for selling, 
 and two dollars a hundred shares for buying. 
 
198 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 The 1 5th of September and Christmas Eve are days 
 which are not religiously observed in the Exchange, but 
 they are observed with equal regularity if less decorum. 
 White hats are considered especially unorthodox on the 
 1 5th of September, by which time every well-informed 
 broker is supposed to have accumulated sufficient worldly 
 goods to purchase a Fall hat, but if he has not, he cer- 
 tainly will have to buy one on margin. 
 
 Only citizens of the United States over twenty-one 
 years of age are eligible to membership, and are admitted 
 only after application to, and a thorough investigation by, 
 the Admissions Committee, and the payment for a cer- 
 tificate of membership which may have been purchased 
 from some other member of the Exchange, but no certifi- 
 cate is of any value so far as its use is concerned by the 
 individual purchasing it, until his application has been ap- 
 proved of by the Admissions Committee, and such mem- 
 bership must be held free and clear of all debt and liability. 
 The seat to which it entitles its holder is subject to sale 
 by the Exchange in discharge of the obligations of its 
 holder to other members ; any surplus remaining over 
 being paid to such holder or his legal representatives. 
 
 The owner of a seat may sell the same by nominating 
 a successor acceptable to the above-named committee, 
 This committee may, upon the death of a member, trans- 
 fer his membership, and after the Exchange has paid all 
 demands properly chargeable against the proceeds of such 
 transfer, it turns the remainder over to his heirs. On the 
 decease of a member, his family receives from the Gratuity 
 Fund ten thousand dollars,this being regarded purely as a 
 gift by the Exchange, and subject to no claims whatever. 
 
 All stock purchased or sold must be delivered between 
 1.15 and 2.15 P.M. If not delivered by the last-named 
 hour, the Exchange is notified, and demand is made for 
 the stock. All stock purchased must be paid for on 
 presentation, most houses requiring certified checks. It 
 is here that over-certification is greatest, many banks find- 
 
THE NEW YORK STOCK EXCHANGE. 199 
 
 ing it necessary to so accommodate their broker custo- 
 mers, who almost invariably make good such over-drafts 
 before the close of the day, but certainly within a reason- 
 able time. The banks generally regarding such a check 
 as an implied notice of a deposit sufficient to more than 
 meet it, the stock itself, for which such check is given 
 often with more stock is deposited as collateral to make 
 good such check, and as this stock is generally by com- 
 mission houses bought for some one else, the check of 
 which purchaser will be doubtlessly received and de- 
 posited the same day, the banks really do not take as 
 much risk as is generally supposed when dealing with 
 reputable houses. 
 
 There are about eleven hundred members, and as the 
 seats are worth about $18,000 apiece at the present time, 
 the cost of these memberships alone represents something 
 over twenty million dollars. All the larger houses have 
 on the Exchange one or more members, or clerks. 
 
 Most of the principal operators and firms doing the 
 greatest volume of business are members more for the 
 sake of getting the benefit of the rates which brokers are 
 allowed to charge each other than for the purpose of 
 actually dealing themselves on the floor, as their presence 
 would often defeat the object they have in view. Nearly 
 all of their larger purchases and sellings are done through 
 other brokers : and it is a common thing for an operator 
 desiring to keep his identity a secret, or to mislead others, 
 to send some member, or some broker known to represent 
 him to sell a small amount of stock, while some other 
 broker, supposed to represent opposed interests buys a 
 large amount of the same stock for his account. But if 
 we should attempt to describe the various methods re- 
 sorted to to deceive and frighten the unwary, we would 
 have no room in this work for other equally important 
 matters. It is sufficient to say that the Wall Street 
 man is ingenious to a degree seldom paralleled in other 
 businesses. 
 
CHAPTER XL 
 
 Corporations, Officers, Etc. 
 
 Corporations. Many enterprises, businesses, and in- 
 dustries require such a large amount of capital in their 
 organization and operation, as well as the certainty that 
 these operations will not suddenly be suspended by the 
 death of one individual, nor interfered with by the settle- 
 ment and division of assets rendered necessary by the re- 
 tirement of a general or special partner, and the public 
 interest in them is often so great, as to render their con- 
 duct by individuals not only inadvisable, but often 
 impossible. 
 
 To meet these objections, corporations, or companies, 
 associations of men for the prosecution of one or more 
 objects, are formed under the laws of different countries. 
 They are granted various privileges which neither are nor 
 can be given individuals, the chief of which is legal per- 
 petuity, or at any rate existence for a given time, if they 
 fulfil the requirements imposed upon them by the power 
 granting them their charter. 
 
 The object of their formation is not only to secure the 
 perpetuity of an enterprise, but to secure and maintain 
 sufficient capital to continue it when formed ; and this 
 can only be accomplished by making the shares of the 
 various persons interested easily transferable ; and defi- 
 nitely settling the proportion of their interests. Again, 
 many persons who would be glad to buy a stated 
 
 200 
 
CORPORATIONS, OFFICERS, ETC. 2OI 
 
 interest, the liability on which was specified, in an enter- 
 prise, which interest they could readily transfer, would be 
 unwilling to become partners, either general or special, in 
 the same thing. 
 
 Corporations are formed to carry on all kinds of busi- 
 nesses and enterprises which men either individually or as 
 firms engage in, save generally those requiring the personal 
 rendering of technical or professional services, although 
 even this field is now encroached upon by the title 
 companies, which employ large numbers of lawyers whose 
 sole occupation is the examining of titles to real estate, 
 and also by dental companies employing a number of 
 dentists, and other novel corporate enterprises. 
 
 Companies are most commonly organized to conduct 
 industries of considerable magnitude requiring a large 
 capital, employing numerous hands, and possessing valu- 
 able franchises, usually derived from the Federal or State 
 governments. 
 
 The principal companies, generally speaking, are those 
 engaged in transportation, mining, and manufacturing, 
 and the transmission of intelligence, i. e., telegraph com- 
 panies, press associations, etc., although a great many 
 large mercantile houses have of late reorganized as cor- 
 porations. 
 
 We will take, by way of illustration, the case of a per- 
 son owning valuable mining lands, but without the capital 
 necessary to make them available and valuable. Assist- 
 ance from others must be had, and the most common 
 way of obtaining such assistance is by the formation of a 
 company by the owner of the lands, and the persons wil- 
 ling to furnish the capital, or so much of it as is necessary 
 to begin operations ; on the formation of such company 
 the- land owner transferring them to the company for so 
 much stock or money, and the people furnishing the 
 money receiving stock for the money furnished. 
 
 To a limited extent the same result may be attained 
 
202 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 by a partnership,. but if the amount needed is large, and 
 has to be subscribed by a number of people, it is found 
 that the partnership becomes unwieldy, and the interests 
 of the several partners difficult of adjustment. 
 
 Having brought together the persons desiring to form 
 such corporation, the next step is to proceed with the 
 organization, which is accomplished in substantially the 
 same way in all States, but the regulations, requirements, 
 and restrictions of many of the States differ, some being 
 more and others less severe. The laws of the same 
 State also differ with respect to the various kinds of com- 
 panies. 
 
 Before organizing, it is very important for the incorpo- 
 rators to decide upon the State under whose laws they 
 will organize, and a judicious decision on this point can 
 generally best be arrived at by following the advice of 
 some well known corporation lawyer. 
 
 Except in the case of companies which derive privi- 
 leges from the States where they operate, a company may, 
 as a rule, become incorporated under the laws of whatever 
 State it pleases, and the incorporation of a company under 
 the laws of another State does not exempt it from the 
 restrictions on, or duties to be performed by, like compa- 
 nies organized under the laws of the State in which it 
 transacts its business. 
 
 In all States the first thing to be done is to file with 
 the proper State officer, usually the Secretary of State, a 
 certificate of incorporation, stating the Act under which 
 the company is organized, if the character of the com- 
 pany is such that it can organize under a given Act 
 (some companies, being permitted only by special Act 
 of the Legislature to organize). 
 
 In the case of railroads and other corporations, organ- 
 ized by special Act of the Legislature, it is necessary to 
 secure the passage of such an Act before any further step 
 is taken, and then, if the company intends to operate in 
 
CORPORATIONS, OFFICERS, ETC. 203 
 
 or through certain cities, a resolution or ordinance of the 
 Board of Aldermen, or the Common Council, or whoever 
 may have control of such privileges, and generally to fur- 
 ther obtain the consent of the property holders owning 
 two-thirds in value of the real estate in the streets of such 
 city through which the road will run. 
 
 While in the State of New York there must be remitted 
 with the certificate of incorporation a tax of one-eighth of 
 one per cent, on the capital stock of the company sought 
 to be organized, together with the fees charged for the 
 receiving and issuance of the necessary papers, in many 
 States no such tax is imposed, and only a charge by the 
 Secretary of State is made. 
 
 The importance of having the organization properly 
 incorporated and all the legal requirements attended to 
 cannot be too strenuously dwelt upon ; and good business 
 men have come to realize that the certificate of a well 
 known legal firm as to the clearness of the title, the com- 
 pliance with statutory legislation, and other legal require- 
 ments add a value to the securities of the company far in 
 excess of the cost of the services rendered. 
 
 A Certificate of incorporation must be filed with the 
 Secretary of State containing the name and object of the 
 company, the names of the directors for the first year 
 (usually chosen by the subscribers to the stock), the num- 
 ber of directors who shall thereafter govern, the amount 
 of capital stock, and the location of the company's prin- 
 cipal office, to which is usually added a provision for the 
 increase or decrease of capital stock. The payment of 
 the tax, which is levied upon the proposed capital of 
 most companies, should usually accompany the cer- 
 tificate. 
 
 Under the laws of none of our States of which the 
 writer is aware is a company required to begin operations 
 with the full amount of its capital stock paid in, except 
 in the case of trust companies of the State of New York. 
 
204 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 In most cases this would be an obvious impossibility, 
 owing to the inability of any man or number of men pla- 
 cing the stock and bonds of a company immediately upon 
 its organization. In fact, most companies reserve a por- 
 tion of their bonds and stocks in their treasury in antici- 
 pation of future needs. 
 
 Attached to the certificate of incorporation should be a 
 copy of the constitution and by-laws. 
 
 Companies operating in one State, but organized under 
 the laws of another, are required to name a resident at- 
 torney in fact, possessed of the usual powers given such 
 attorneys. 
 
 According to the laws of some of the States, the princi- 
 pal office of such company must be in the State under 
 the laws of which it is organized, where its books espe- 
 cially its stock and transfer books must be kept, but this 
 is not always so, especially in the case of West Virginia. 
 Companies organized under the laws of the State of New 
 York are required to have a certain per cent, of their 
 directors, according to the character of the corporation, 
 residents of the State. 
 
 Privileges or concessions are usually granted upon cer- 
 tain conditions, varying according to the character of the 
 company, the nature of its business, and the source from 
 which they are received. 
 
 As to the distinction between and the rights of stock- 
 holders, and bondholders, and stock and bonds, see Chap- 
 ter XIV. 
 
 Officers. A few suggestions as to the duties of the 
 President, Vice-President, Secretary, and Treasurer of a 
 Corporation. 
 
 In order to conduct business with dispatch and cer- 
 tainty, and to enter into contracts which will be binding 
 upon both parties, it is necessary not only that a person 
 having dealings with corporations should have some 
 knowledge of the powers of the officers of such corpora- 
 
CORPORATIONS, OFFICERS, ETC. 2O$ 
 
 tions, but also that the officers themselves should know 
 the extent and limitations of their powers and duties, so 
 that they may exercise these duties and powers within 
 their legitimate range. It has, therefore, been thought 
 wise to make a few general comments on this subject. 
 
 The President, as the head of a corporation and its 
 chief officer, would naturally be spoken of first, though in 
 some cases instead of a President, a Corporation or Com- 
 pany is managed by Commissioners or a Committee who 
 may or may not have a Chairman, but, as a general thing, 
 each Corporation has its President. 
 
 Before proceeding specifically to enumerate the duties 
 of these officers, it is well to state that their powers are 
 usually prescribed by the Constitution and By-Laws of 
 the Company which they serve ; in some companies the 
 powers of the officers being very great and in others more 
 limited. And while in some cases the duties of one officer 
 are assigned to some other officer, notably in the case of 
 the Secretary and Treasurer, yet as a rule the officers 
 subsequently named have substantially the following 
 duties assigned them. 
 
 President. The President is always a member of the 
 Board of Directors or Trustees, and usually its Chairman. 
 He is vested with power to enter into and sign contracts, 
 deeds, agreements, and various other legal documents by 
 direction of the Board of Directors or Trustees. 
 
 He is expected to be present and preside at all meet- 
 ings of the Board of Directors and Stockholders. To 
 him is entrusted the general management of the Company 
 and the employment of its subordinates. Other officers 
 who employ clerks or laborers derive their power from 
 him. 
 
 All important documents with the Company should 
 bear the signature of the President. 
 
 Vice-President. The Vice-President, in the absence of 
 the President, performs the duties assigned him ; but 
 
206 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 when the President is present, the Vice-President's duties 
 are principally those of an assistant to the President, al- 
 though, in large corporations Vice-Presidents usually 
 have charge of some particular department. 
 
 Secretary. The Secretary's duties are confined princi- 
 pally to the keeping of the records of the Company, con- 
 sisting of the meetings of the Board of Directors and 
 the meetings of the stockholders, the issuance of calls to 
 such meetings, and the submission of the Annual Re- 
 ports placed in his hands to the Board of Directors and 
 the stockholders ; to the conduct of the correspondence ; 
 and he is generally called upon to attest all documents 
 signed by the President, to sign the bonds and coupons 
 attached thereto, certificates of stock, and to see to the 
 transfer of stock certificates, and to attach the seal of 
 the Corporation to all contracts requiring such seal. 
 
 Under the By-Laws of many institutions the Secretary 
 is made Assistant-Treasurer, so that in the absence of the 
 Treasurer he may perform the duties pertaining to that 
 office. 
 
 The office of Secretary and Treasurer are also fre- 
 quently combined, in which case, in addition to the duties 
 above enumerated, he discharges those duties which the 
 Treasurer is usually called upon to perform. 
 
 Treasurer. The Treasurer is more particularly the 
 financial man of a company, and under his direction are 
 kept the books, showing the assets and liabilities of the 
 Company, and its general business transactions. It is 
 his duty, with the direction of the Board of Directors, to 
 designate a bank in which the funds of the Corporation 
 shall be deposited, and therein to deposit them. 
 
 He is also required (by most companies) to counter- 
 sign all contracts, checks, notes, and other evidences of 
 debt or promises to pay, which have to be signed by the 
 President. 
 
 General Manager. The General Manager, while not 
 
CORPORATIONS, OFFICERS, ETC. 2O/ 
 
 necessarily a member of the Board of Directors, and sup- 
 posed to be subordinate to the President, is perhaps the 
 one officer with whom the public deals most directly, and 
 Avhose power it is most important that they should under- 
 stand. 
 
 His power, as stated, is derived principally from the 
 President as under the constitution of most companies 
 the General Manager is appointed by the President, but 
 when appointed by the Board of Directors is answerable 
 to them. In such case his duties and powers are pre- 
 scribed in the By-Laws. 
 
 It is ordinarily safe to assume that the General Mana- 
 ger has power to enter into contracts for supplies and 
 such material as is legitimately needed in the opera- 
 tion of the particular business under his control, and to 
 make agreements for the employment of clerks and 
 laborers and others necessary to the operation of the 
 company. 
 
 In the case of a contract involving a large sum of 
 money, or one which it is not commonly known that the 
 General Manager has power to bind the company upon, 
 it is wise to have the same ratified and confirmed by the 
 President. There are, however, certain contracts and 
 deeds which even the President has not the power to 
 enter into, these, as a general rule, are contracts dis- 
 posing of some portion of the assets or franchises of the 
 company, the power to dispose of which rests with the 
 stockholders only. 
 
 The issuance of new stocks or bonds can only be 
 legally done by the direction of the stockholders. 
 
 In many companies, while the President and Treas- 
 urer finally sign a contract, still their power is limited, 
 and they are only empowered so to do after the passage 
 of a resolution to that effect by the Board of Directors. 
 
 Of course, it is obviously impossible to give more than 
 the briefest outline of the duties of the various officers of 
 
208 
 
 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 a corporation, and when a person is in doubt as to the 
 ability of a particular officer or of particular officers to 
 bind a company, it is always best to consult some repu- 
 table attorney in respect thereto, because there is no 
 greater source of litigation than the repudiation of con- 
 tracts by corporations, the defence almost invariably set 
 up being that the officer exceeded his power. 
 
CHAPTER XII. 
 
 Stocks, Bonds, Warrants, and Receivers' Certificates. 
 
 No work on Finance would be complete without some 
 treatment of this subject, and while it is a rather recent 
 development of finance, it constitutes to-day one of its 
 most important divisions. The size of this book, how- 
 ever, permits only of a very brief discussion of the sub- 
 ject. 
 
 As certificates of stock or shares are written evidence 
 of the rights of their holders, transferable on sale or regis- 
 tration, and bonds are subsequently issued by authoriza- 
 tion and direction of these holders, we will follow in our 
 treatment of the subject, this order. 
 
 Before proceeding to a particular consideration of 
 stocks and bonds, it seems necessary to say a word as to 
 the necessity of their issuance. 
 
 One of the objects of incorporation is to afford the pub- 
 lic an opportunity to subscribe the requisite capital for 
 the organization and operation of an enterprise, and after 
 the purchase of its plant and franchises partly if not 
 wholly by the money paid in by the shareholders, it issues 
 its bonds, secured by a mortgage on its assets, or some 
 part thereof, with which to secure whatever money may 
 be needed for its further completion and operation. 
 
 Stocks. 
 
 Shares, in the United States generally called " Stock," 
 are certificates issued by a corporation, certifying that 
 the person in whose name they are written and stand 
 
 209 
 
210 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 registered on the books of the company, is entitled to 
 a portion of the corporation's profits, to the right, by 
 vote, to participate in its management, and, according to 
 the character of the shares, liable to assessment for its 
 debts. It must be borne in mind, however, that all stock 
 is not registered, nor is all assessable. The shareholder 
 is, for the time being, a limited partner in the enterprise 
 by which his shares are issued, but this interest is more 
 readily transferable, and his rights having been previously 
 determined, are more easily disposed of, than in the case 
 of an ordinary special partnership interest. 
 
 While all shares entitle their holders to a certain pro- 
 portion of the net earnings of the corporation, it must be 
 remembered that these earnings can only be computed 
 and distributed among the shareholders after the payment 
 of all obligations of the company, such as operating ex- 
 penses, fixed charges, etc., inasmuch as the shareholder is 
 regarded in law as a partner in the enterprise, and there- 
 fore the last person entitled to share in the distribution of 
 its assets. Bondholders, on the contrary, are creditors 
 of the corporation, having loaned or advanced it money, 
 receiving as evidence of such loan, a bond secured by a 
 mortgage on the property and earning capacity of the 
 company. Because of this liability of the shareholders (in 
 the case of assessable shares) and their position as special 
 partners, they are given the control of the company, 
 whereas the bondholders being in the position of lenders 
 or creditors of such corporations are not generally ac- 
 corded any voice in the management of a solvent com- 
 pany, although there are being issued by some few 
 corporations, bonds giving their owners certain rights of 
 participation in the corporate management in the event of 
 certain contingencies arising. This, however, is in direct 
 contravention of the principles upon which shares and 
 bonds are issued and held, and is not, therefore, very 
 popular or resorted to often. 
 
STOCKS, BONDS, ETC. 211 
 
 The rights and liabilities of shareholders are determined 
 not alone by the language of the share, but also by the 
 statute law of the State or country from which the cor- 
 poration issuing such shares derives its powers. 
 
 Having broadly defined shares we must now proceed to 
 a more specific consideration of their different kinds, the 
 six principal kinds being: 1st, Assessable ; 2d, Non-Assess- 
 able ; 3d, Preferred ; and 4th, Common ; and all shares 
 belong to one or more of these kinds. A 5th kind of 
 share, known as Cumulative, is issued, and a 6th, Non- 
 Cumulative. 
 
 Assessable. The stock of many corporations under the 
 laws of the United States and the States, under one of 
 which they must organize, is made assessable ; thus the 
 shareholders of national banks are made liable to the 
 amount of the value of their stock to the creditors of the 
 bank. In other words, a holder of $100,000 of the shares 
 of a national bank would be liable to assessment to that 
 amount in addition to the application of the money paid 
 in for the purchase of the stock. Many transportation 
 and industrial companies issue assessable stock, and a 
 purchase of this stock in any but a sound and well-man- 
 aged corporation is attended with considerable responsi- 
 bility. The limit of assessment, however, in all cases is 
 100 per cent, upon the face of the shares. Assessable 
 stock may, instead of being an asset of its holder, become 
 an actual liability, on account of the responsibility as- 
 sumed in the payment of assessments, and it often be- 
 comes impossible to give it away. 
 
 In case of the insolvency of a corporation issuing assess- 
 able stock, bondholders and other creditors may institute 
 civil actions to recover their pro rata contributions from 
 each holder of assessable stock. 
 
 Non-Assessable Stock. No explanation is needed as to 
 the character of this stock. It carries with it all the rights 
 and privileges, but none of the liabilities and responsibili- 
 
212 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 ties inherent in an assessable stock, and the utmost obliga- 
 tory loss that can be sustained by its holder is that of 
 the amount paid for the stock. The holder of non-assess- 
 able stock, however, may, in common with other holders, 
 voluntarily consent to the payment of an assessment for 
 the purpose of putting the corporation issuing the stock 
 in a better financial condition. 
 
 Preferred Stock. Preferred here means that the stock 
 so called has a preference over other stock in the payment 
 of dividends. It does not affect the general character of 
 the stock, which may be assessable or non-assessable, cumu- 
 lative or non-cumulative. The effect of the word is simply 
 to entitle the holder of such stock to be the first to par- 
 ticipate in the net earnings of the corporation. This stock 
 is also further divided into first, second, and sometimes 
 even third preferred, all of which come before common 
 stock. All stock, however, generally has the same voting 
 rights, although occasionally where a special guarantee is 
 made the preferred stockholders, putting them in the 
 peculiar position of being partly owners and partly credit- 
 ors of the' corporation, they are deprived of the right to 
 vote, and the controlling power is exercised solely by 
 the common shareholders. But the dividend to which 
 the preferred stockholders may become entitled is gener- 
 ally specifically stated, and any surplus remaining after 
 such payment goes to the common shareholder. In a few 
 isolated cases of extraordinarily successful companies, it 
 has been found that, after the payment of the specified 
 dividends to the preferred shareholders, the amount re- 
 maining as a dividend to the common shareholders was 
 so largely In excess of the dividend payable to the pre- 
 ferred that provision was made that after payment of a 
 certain dividend to both preferred and common share- 
 holders the balance should be divided equally between 
 them. The value of the preferred, as well as all other 
 stocks, may be seriously impaired, not only by the incur- 
 
STOCKS, BONDS, ETC. 
 
 ring of floating debt, but by the making and issuing of 
 bonds secured by mortgages ; but inasmuch as these 
 bonds and other debts can be incurred and the obligations 
 can be ratified only by the action of the shareholders, 
 through their representatives, the directors or trustees of 
 a corporation, attempts on the part of shareholders to re- 
 pudiate such obligations have almost invariably been ren- 
 dered futile by the decrees of our courts, because even 
 though the issue of such obligations should be proven to 
 be fraudulent, the innocent holder should not be made to 
 suffer for such wrong, but the agents of the shareholders 
 who exceeded or abused their powers might be held 
 accountable. 
 
 Common Stock. After pointing out the distinction 
 between preferred and common stock, which necessarily 
 involved an explanation of the right of the common stock- 
 holders, little need be said in this regard. 
 
 While the common shares are the last to participate in 
 the distribution of the net earnings of a company after 
 the payment of accrued indebtedness, in exceptional cases 
 where these net earnings are very large and a limit is 
 placed on the dividends payable on anterior stocks, the 
 common becomes more valuable than the preferred. 
 
 Cumulative. A cumulative stock is one on which the 
 corporation agrees to pay dividends past due and unpaid 
 before declaring a dividend on stocks coming after it in 
 the distribution of net earnings, and is necessarily a pre- 
 ferred stock, to that extent at least. 
 
 The cumulative feature of a stock at best can only be 
 effective as against subsequent shareholders, as all accrued 
 debts of the company must be provided for before either 
 present or past dividends can be declared. The cumula- 
 tive feature, while it adds an additional value to preferred 
 stock, to the same extent lessens the chances of participa- 
 tion in earnings by the common stock, and hence decreases 
 its value. 
 
214 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Non-Cumulative Stock is stock without this provision 
 for the payment of past due dividends. 
 
 Unless specifically stated, the dividends on a stock are 
 non-cumulative, and in the case of' the issue of only com- 
 mon or capital stock this cumulative provision would be 
 of no effect in any event, because the shareholders could 
 at best do no more than participate in the final net earn- 
 ings, and even without a cumulative clause, if those final 
 net earnings were sufficient to pay past due dividends, 
 could declare the same ; unless restricted by law, as some 
 of our corporations possessing valuable franchises from 
 States and cities have been, from declaring dividends in 
 excess of a certain percentage per year, although this 
 restriction has been generally avoided by the issue of an 
 amount of stock sufficient to bring the dividends within 
 the maximum rate which the law permits to be declared. 
 Thus, if after paying all fixed charges a corporation with a 
 capital stock of $10,000,000 should have final net earnings 
 of $i ,200,000, and the law prohibited the declaring of a divi- 
 dend in excess of 6 per cent, on the stock of the company, 
 by doubling the amount of its capital stock it would then 
 be enabled to pay just 6 per cent, and thus come within 
 the restriction of the law. Various laws have been enacted 
 looking to the prevention of what is known as the water- 
 ing of stock, even going to the extent of compelling the 
 corporation to reduce the charge for its commodities or 
 services ; yet so long as such corporation is able to declare 
 a fair dividend on its issue of stock, so long will there be 
 a market for that stock. 
 
 In the absence of governmental restriction as to the 
 amount of dividend paid, it sometimes happens, in the case 
 of very successful corporations, that their stock becomes 
 more valuable than their bonds, the bonds being a fixed 
 charge the interest upon which is specified, while the divi- 
 dends upon the stock may amount to a larger percentage 
 of interest than that paid on the bonds, besides carrying 
 with it the control of the company. 
 
 L 
 
STOCKS, BONDS, ETC. 21$ 
 
 Common stock is sometimes given to purchasers of 
 bonds as a bonus, and of course carries with it the right 
 to participate as shareholders in the management of the 
 corporation. 
 
 Promoters Shares. Promoters' shares are issued by cor- 
 porations in payment of the services of the promoters in 
 the organization of such companies. The issue of this 
 stock, while quite common in England, is very infrequent 
 in this country, payment being usually demanded by our 
 bankers or promoters either in money, mortgage bonds, 
 perferred, or common stock. A promoter's share is 
 entitled to participation in the final net earnings of a 
 company only after payment of all accrued obligations, 
 including the establishment of any sinking fund or surplus 
 which either the articles of incorporation or the constitu- 
 tion and by-laws or the bonds or mortgages provide for ; 
 but, as it is entitled to absorb the final amount remaining, 
 in the absence of provision in the other stocks to the 
 contrary, after the above payments they sometimes be- 
 come very valuable. 
 
 Dividends. Dividends, it must be remembered, stand to 
 the stockholder in the same relation that the division of 
 the profits of a private business do to the partners therein, 
 consequently they should only be declared, and can 
 legally only be paid, after the payment of all accrued in- 
 debtedness, including the setting aside and creation of 
 any fund or funds which the corporation binds itself to its 
 creditors to create and set aside. 
 
 Stocks are sold " dividend " or " ex-dividend." When 
 a dividend is declared a day is fixed for the closing of the 
 transfer books of the company, after which date no trans- 
 fers can be made until the books have been reopened. 
 On the morning of the day that the books are closed the 
 stock is sold on the New York Stock Exchange " ex- 
 dividend " an amount equal to that of the dividend 
 declared being deducted from the price at which the stock 
 would ordinarily be sold. It is needless to say that this 
 
2l6 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 applies only to sales on the exchange, as a private 
 purchaser can stipulate that the dividend be included, or 
 not, as he chooses the result, however, being practically 
 the same. 
 
 Guaranteed Stock. Stocks of subsidiary, auxiliary, 
 leased, or rented properties are often in fact generally 
 guaranteed by the principal company. Usually in case of 
 lease or rental, however, only the interest is guaranteed 
 by the lessee company, unless it be a lease for a period 
 which means practical ownership or control, when both 
 principal and interest are guaranteed. 
 
 In the case of a leased company such a guarantee con- 
 stitutes a claim which must be paid even before the fixed 
 charges of the lessee company. The default of payment 
 abrogates the contract, with the institution of such penalty 
 against the guarantor as may be stipulated. Thus often 
 companies which were at one time very prosperous are 
 dragged down by the weight of guarantees on securities 
 of their connections or branches which were hastily and 
 unwisely taken into their systems. 
 
 Trust companies and bankers are frequently appointed 
 as the fiscal agents of corporations for the purpose of 
 registering and certifying to the regularity of the issue of 
 stocks. 
 
 A brief explanation of such terms as " Assented " stock, 
 " First Assessment paid," etc., is desirable. Stocks thus 
 designated usually remain in the hands of holders, and 
 their character is only so far changed as indicated by the 
 words which are stamped or written upon them. This is 
 done by the trustee. In cases where an assessment is 
 found necessary, the holders of the security assessed are 
 requested to bring such security to the firm, bank, or trust 
 company having the matter in charge, and have them 
 certify by stamping or writing upon the security that the 
 assessment has been paid. The same applies to the assent 
 of security holders to any plan for merging them into, or 
 
STOCKS, BONDS, ETC. 21? 
 
 exchanging for, other or new issues. They are thus 
 stamped in order that they may be distinguished , from 
 others which have not paid the " assessment " or " as- 
 sented " to the plan, as it will readily be seen that the 
 compliance with the terms proposed in either case may 
 affect the market values of the securities to a considerable 
 extent. 
 
 The exchange quotations distinguish such securities by 
 prefixing the abbreviations " 1st (or 2d) Asst. pd." or 
 " Assented," as the case may be. There are many other 
 conditions under which bonds and stocks are stamped, in 
 order to signify their acceptance of various propositions. 
 The above instances are merely cited as illustrations. 
 
 Bonds. 
 
 The following observations on the above subject will be 
 confined entirely to government and corporate bonds. 
 
 A bond is an instrument by which the maker binds him- 
 self under certain conditions to the performance of some 
 particular thing. Government, State, or municipal bonds, 
 properly so called, are seldom secured by a mortgage on 
 anything beyond a certain portion of the taxing power of 
 the maker, which may be pledged to the holder for the 
 payment of the interest and principal of such bond. Vil- 
 lage, town, district, county, and State warrants partake of 
 the nature of bonds, and, in common with bonds issued by 
 municipalities and States, are known as Investment Securi- 
 ties, and will be treated of under that head, to which the 
 reader is referred. 
 
 Corporate Bonds. The bonds of corporations are com- 
 monly known as mortgage bonds, and are secured by a 
 mortgage upon its entire plant, franchises, and assets, or a 
 portion thereof, the exact portion of which is or should be 
 always stated in the mortgage to which the bond refers. 
 
 Attached to these bonds are coupons payable at given 
 periods, generally semi-annually, stating that the holder is 
 
2l8 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 entitled to the interest then falling due. This is very con- 
 venient, as the coupon containing the number of the bond 
 and signed by the proper officer or officers, without the 
 presentation of the bond itself, shows the holder of such 
 coupon to be entitled to the interest in it named, and of 
 course is transferable on delivery. 
 
 A corporate bond, in common with all other bonds, is 
 a written evidence of the obligation of the corporation to 
 perform certain acts therein named in consideration of the 
 payment to the company of a specified value (it is not in- 
 tended to convey the impression that bonds are always 
 sold for the amount stated on their face, they sometimes 
 being sold at a premium and other times at a discount), 
 for which the bond is a receipt, and a bondholder, conse- 
 quently, is in the position of a creditor of the company, 
 which, until the payment and cancellation of such bond, is 
 indebted to him for the payment for which the bond is a 
 receipt. 
 
 The rights of bondholders are determined by the lan- 
 guage of the bond, as well as by the language of the 
 mortgage securing the same, and the laws governing the 
 issue of such bonds. 
 
 At the present time a mortgage securing the payment 
 of corporate bonds is usually placed in the hands of a 
 trustee, generally some trust company, which is supposed 
 to act in behalf of the bondholders as a unit, and which is 
 empowered by the language of the bond, in the event of 
 the failure of the corporation to perform the obligations it 
 assumes in said bond, to foreclose the mortgage and divide 
 the proceeds of sale among the bondholders. 
 
 The practical question, and the one which really regu- 
 lates the amount of the issue of bonds, is the ability of 
 the company to finance or place them on the market. 
 Where the bonded indebtedness is in excess of the value 
 of the mortgaged property and the earning capacity of 
 the corporation, it is much more difficult to secure pur- 
 
STOCKS, BONDS, ETC. 21$ 
 
 chasers than where the mortgaged property and the earn- 
 ing capacity forms an ample security for such bonds. 
 
 The laws in most States are designed especially for the 
 benefit and protection of .the public from the usurpation 
 of power by corporations, and as in many companies 
 especially railroad and telegraph companies valuable 
 franchises are afforded them by the government, it in 
 turn restricts the exercise of those franchises and limits a 
 corporation in various ways, too numerous even to sug- 
 gest here, and it is very essential to a determination of 
 the value of either a share or a bond to know, first, the 
 power given such corporation, and next, the legal limita- 
 tions and restrictions upon the exercise of its corporate 
 powers. 
 
 It must be borne in mind that bonds can only be issued 
 by the consent and direction of the shareholders, because 
 of the fact that their property becomes mortgaged in pay- 
 ment of such bonds, making them necessary parties. 
 
 Bonds of corporations constitute a variety of obliga- 
 tions, and are widely different in character and value. In 
 the case of railroads, bonds are issued against the main 
 line and branches, against the securities in their posses- 
 sion, against its rolling stock and equipment, and against 
 its present or future earnings. In some cases bonds are 
 secured by little, if anything, besides the promise and 
 ability of the issuing corporation to pay. 
 
 The bonds of gas, telegraph, and electric companies are 
 somewhat less complex and fewer in kind than those 
 issued by railroad companies. 
 
 The denomination and nature of a bond, name of com- 
 pany issuing same, rate of interest, kind of coin in which 
 it is to be redeemed, and the date of payment of principal 
 are generally stated in its title, thus : 
 
 " $1000. Railroad Co. First Mortgage, 5 % Gold Bond, Due 
 
 1903." 
 
220 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Also the name of the guaranteeing company, when the 
 bond is guaranteed by another company. 
 
 Among the kinds of bonds dealt in on the New York 
 Stock Exchange are the following : First Mortgage Bonds, 
 Second Mortgage Bonds, Third Mortgage Bonds, First, 
 Second, and Third Consolidated Mortgage Bonds, In- 
 come, First, Second, and Third Preference Bonds, Col- 
 lateral Trust Bonds, Debenture Bonds, General Mortgage 
 Bonds, Convertible Bonds, Sinking Fund Bonds, Improve- 
 ment and Extension Bonds, Car Trust Bonds. 
 
 First Mortgage Bonds. As the term implies, these 
 bonds constitute a first lien upon the property of the 
 company which issues them, that is, upon all property 
 actually owned by the company at the time when the 
 issue is made. In case, however, of the future absorption 
 of other properties, a question naturally arises as to the 
 right of the bondholders under the clauses generally con- 
 tained in first mortgage bonds, constituting the bond a 
 first lien " upon all property now owned or hereafter ac- 
 quired," etc. When this provision is made there can be 
 no doubt as to the rights of the holders of the first mort- 
 gage bonds, provided that in future acquirements of other 
 companies the property of such companies has not been 
 placed under a mortgage issued prior to its absorption. 
 In the latter case the previous mortgage existing on the 
 property acquired cannot be superseded by that of the 
 company which absorbs it. Thus, in the case of many of 
 the larger railway systems, we see mortgages which one 
 not familiar with the properties would assume to be a first 
 lien upon the entire plant, but which are really a first 
 mortgage on only a portion of the system. 
 
 Second and Third Mortgage Bonds, in view of the 
 above, need no description here. The claims of holders 
 under these mortgages naturally coming in proper se- 
 quence. It is scarcely necessary to add that when such 
 mortgages exist the interest thereon is paid after that of 
 the first mortgage has been satisfied. 
 
STOCKS, BONDS, ETC. 221 
 
 Consolidated Mortgage Bonds are generally issued to 
 take up and fund the prior bonds existing on one or more 
 parts of a system, but unless they possess a greater mar- 
 ketable value than is possessed by the bonds they are de- 
 signed to replace, the holders of the other bonds will not 
 part with them. A consolidated mortgage bond can only 
 become a first lien on the assets and earnings of a prop- 
 erty by the retirement of prior mortgages. Many com- 
 panies, in issuing these bonds, retain in their treasuries a 
 certain portion for the purpose of retiring previous bond 
 issues, but as these prior bondholders are under no legal 
 obligation to make such exchange, so long as they refuse 
 so to do consolidated mortgage bonds constitute only a 
 subsequent lien on the property and earnings. 
 
 Second Consolidated Bonds are issued by some corpora- 
 tions, and their bondholders are subsequent lienors to the 
 first consolidated bondholders, in the same manner that 
 the second mortgage bondholder comes after the first 
 mortgage bondholder. 
 
 Income Bonds. As indicated by their name, are usually 
 secured by a mortgage on the earnings or income of a 
 corporation after the payment of prior claims thereon. 
 When secured by collateral they are known as " Collateral 
 Income Bonds." Being frequently issued without a mort- 
 gage or some actual present security for their ultimate re- 
 demption, a sinking fund oftentimes is created for that 
 purpose. These bonds are frequently nothing more 
 than a promissory note of the issuer, with coupons at- 
 tached, bearing a certain rate of interest payable at a 
 specified date, in which case they are wholly dependent 
 for their marketable value upon the earning capacity of 
 the company. 
 
 Income bonds, in common with all other bonds, being 
 a prior lien on the earnings of a corporation to that of any 
 stock, often seriously decrease the value of such stock by 
 diminishing the amount of earnings applicable for divi- 
 
222 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 dends thereon. In the case of St. John vs. Erie Railroad, 
 it was sought by the preferred stockholders through the 
 courts to compel the road to continue the payment of 
 dividends on their stock, but the Court took the ground 
 that the preferred stockholders, having voted for the in- 
 curring of this obligation, having ratified the action of the 
 Board of Directors, and having used the money for bet- 
 terments, i. e., for their own benefit, were estopped from 
 disclaiming the obligation, and that dividends on their 
 stock could only be paid after the payment of interest on 
 these bonds. 
 
 Collateral Trust Bonds. As their name implies, these 
 bonds are issued against collateral deposited with a trus- 
 tee (most commonly some trust company), giving the trus- 
 tee power to sell the collateral and redeem the bonds upon 
 failure of the issuer to fulfil the conditions undertaken. 
 
 Collateral trust bonds consist of two sorts ; first, the 
 " Collateral Trust," where specific collateral is placed in 
 the hands of a trustee to insure the performance by the 
 corporation issuing these bonds of the payment of interest 
 and principal when due. This collateral cannot be changed 
 or converted. And secondly, *' Convertible Collateral 
 Trust Bonds," in which collateral is placed in the hands 
 of the trustee for the same purpose as in the case of col- 
 lateral trust bonds, but which collateral may be exchanged 
 or converted at the option of the issuer with the consent 
 of the trustee or bondholders. The collateral deposited 
 to secure both bonds usually consists of the securities of 
 other companies possessed by the issuers of such bonds. 
 
 Often, in addition to the collateral deposited with the 
 trustee, a mortgage is made of a certain part of the prop- 
 erty and assets of the corporation and given as further 
 security. 
 
 For several reasons a convertible collateral trust bond 
 would seem to be a more desirable bond than an in- 
 convertible one, first, because the inconvertible bond is 
 
STOCKS, BONDS, ETC. 22$ 
 
 secured by an unchangeable security which may depreci- 
 ate in value, when the holders of such bonds could not 
 call upon the issuers to deposit further security, nor by 
 the terms of the bond and mortgage could the issuers 
 take advantage of any increase in the market value of the 
 collateral, to dispose of it to their own or the bondholders' 
 benefit. Of course it is true that in the case of converti- 
 ble collateral the security is subject to the same deprecia- 
 tion, but here advantage may be taken of any appreci- 
 ation in the collaterals, and other collaterals greater in 
 value may be purchased,, or should the collateral be sold, 
 the proceeds of such sale can be deposited with the trustee 
 to take up a certain portion of such bonds. Convertible 
 collateral bonds frequently contain a provision giving the 
 company the right to redeem them at a given price after 
 a certain number of years. 
 
 The value of a collateral trust bond, either convertible 
 or inconvertible, like that of any other bond, depends 
 upon the collateral by which it is secured and the earn- 
 ing capacity of the issuer. These bonds are frequently 
 issued upon the absorption by one corporation of one or 
 more smaller companies. 
 
 Debenture Bonds. A debenture bond is difficult to de- 
 fine exactly. It is generally considered to be little more 
 or less than a note given by a company a promise to 
 pay. In the case of the debentures issued by the Chicago 
 & Northwestern, due 1909 and 1933, respectively, and pay- 
 ing 5 per cent, interest, it is provided that " any future 
 mortgage of the company, excepting any mortgages for 
 the enlargement, betterment, or extension of the com- 
 pany's property, shall include these debentures." 
 
 A debenture bond may be a general lien on the prop- 
 erty of a company, and like an income bond it generally 
 contains specific provisions for liens on certain property 
 and assets of a company, subject to the rights of prior 
 mortgages. 
 
224 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 In some States, where the laws in regard to mortgages 
 are onerous, a debenture is issued by a company in prefer- 
 ence to a second or third mortgage. As will be seen in 
 the case above cited, they are also, in some instances, pro- 
 tected from being superseded by future mortgages, and 
 must be included therein. Debenture bonds frequently 
 contain a sinking-fund clause. 
 
 Like all other obligations, their value depends upon 
 the character and standing of the corporations issuing 
 them, and while in some cases they may represent little 
 or nothing, when issued by companies of high standing 
 they are desirable investments. 
 
 These bonds are also largely issued by mortgage and 
 debenture companies, and are generally secured by the 
 placing of mortgages given to the issuing company to 
 secure loans on real estate, in the hands of a trustee, 
 and constitute the collateral on which these bonds are 
 issued. 
 
 General Mortgage Bonds. As the name implies, they 
 are a general mortgage on the property of a company. 
 Like a consolidated bond, they may be a first lien on one 
 portion of a system, a second on another, and so on. The 
 value of a bond of this character can be ascertained only 
 by knowing to what extent prior mortgage liens exist, and 
 the value and earning power of the property by which it 
 is issued and secured. 
 
 Sinking Fund. Provision may be made in any bond 
 for the creation and accumulation of a sinking fund with 
 which to redeem such bond at maturity. This fund is 
 generally accumulated by the setting aside each half year 
 or year of an amount equal to a certain per cent, of the 
 issue of bonds which it is created to pay. It constitutes 
 a contract on the part of the issuer with the lender, is an 
 obligation as binding upon the issuer as provision for the 
 payment of coupons, and must be provided for out of the 
 earnings of the company. 
 
STOCKS, BONDS, ETC. 22$ 
 
 Redemption before Maturity. A clause reserving to 
 the company the right to redeem after the expiration of 
 a certain time and before maturity may be incorporated 
 in any bond. 
 
 Many bonds, on account of the incorporation of these 
 various features, can hardly be designated as belonging 
 to a particular class, but partake in some respects of the 
 nature of several different classes of bonds. 
 
 Improvement and Extension Bonds. These bonds are 
 issued against improvements, betterments, additions, ex- 
 tensions, etc. In the case of extensions they may be a 
 first lien upon the extension itself. They are guaranteed 
 by the company under whose name they are issued.. Some 
 of these bonds, when they represent the outlay of money 
 for permanent improvements and betterments, are con- 
 sidered an excellent investment. On the other hand, as 
 is too often the case, unfortunately, bonds of this class 
 are issued to cover expenditures which, properly, should 
 have been chargeable to " operating expenses," and were 
 not so charged by reason of reckless or incompetent 
 management. 
 
 Car Trust Bonds. These bonds are secured by a mort- 
 gage on the cars of the company named therein, and in 
 case of the failure of the maker to meet the payments or 
 perform the obligations therein incurred, the holders may 
 seize the cars thereby mortgaged. They are generally 
 issued by Car Trust or Rolling Stock companies. 
 
 Remarks. In the foregoing pages we have endeavored 
 to give a brief description of the bonds principally dealt 
 in on the New York Stock Exchange and among financial 
 institutions and investors. It is not our province to de- 
 fine the exact legal status of the different kinds of bonds ; 
 that can only be determined by experienced lawyers. 
 The exact rights of the holder of a general or consoli- 
 dated, an income or debenture bond, depend upon many 
 circumstances and conditions, the laws of the State or 
 
226 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 States under which the mortgagor is organized, the 
 amount covered by prior mortgages, and the provisions 
 of the bond itself. 
 
 Many bonds partake of the nature of several classes 
 thus a First Consolidated Sinking Fund, a General Con- 
 solidated. A General or an Income Bond wherejio sec- 
 ond mortgage exists on a property may be practically on 
 the same footing as a second mortgage on another prop- 
 erty. In many cases a first mortgage is little better than 
 worthless in other instances a Debenture Bond may sell 
 at a premium. 
 
 Some of our large corporations have so great a mania 
 for issuing new obligations that it becomes difficult to in- 
 vent a proper title for all of their bonds. It may be stated 
 as a general rule, however, that very few corporations, and 
 none of high standing, issue bonds which in their nature 
 conflict with one another; thus we seldom see a consoli- 
 dated mortgage bond and a general mortgage issued on 
 the same property, or second and third mortgages where 
 a consolidated, a collateral, or a general mortgage exists. 
 In the first place the laws of many States seek to prevent 
 confusion of rights ; in the second, and what is more im- 
 portant to the companies, the investing public will not 
 purchase at a good price securities on whose title a cloud 
 rests. 
 
 Certificates of Indebtedness (Floating Debts). Certifi- 
 cates of Indebtedness are frequently issued by corpora- 
 tions as evidence of their floating, accrued, unfunded 
 debts. The holders of these certificates possess a claim 
 on the property and assets of the company for the amount 
 stated in such certificates, and if it is not paid within the 
 time named they may apply for the appointment of a 
 receiver. 
 Trust Company Receipts, Certificates of Deposit, etc. 
 
 Trust Companies' receipts and certificates of deposit, 
 although securities which are of a temporary nature, re- 
 
STOCKS, BONDS, ETC. 22J 
 
 quire a brief description, as they are often listed, bought, 
 and sold on the Stock Exchange the same as securities of 
 a more permanent nature. 
 
 The certificates of deposit usually represent the deposit 
 of securities under some plan for the readjustment, con- 
 solidation, or reorganization of properties, such securities 
 being held in trust until the same has been effected. 
 
 The receipt by the trustee to the depositor for the se- 
 curity deposited with it enable such depositor to avoid 
 the inconvenience and loss which he might suffer from in- 
 ability to use the security so deposited ; the title to such 
 security being transferable by the holder of the certificate, 
 or it may be used by the holder as collateral in the secur- 
 ing of a loan. 
 
 Receivers' Certificates. 
 
 Once a property is placed under the management of a 
 receiver, it is in the hands of the Court under whose 
 jurisdiction the receivership has been granted. 
 
 The rules which ordinarily apply to the financiering of 
 a corporation as regards its stock and bonds may, at the 
 will of the receiver, if approved by the Court, be set 
 aside. The receiver operates the property, under the 
 direction of the Court, for the benefit of its security 
 holders. 
 
 Receivers' Certificates are issued for the purpose of ob- 
 taining money for the company, and are seldom resorted 
 to except in cases of absolute necessity or of great emer- 
 gency. When a company is practically bankrupt and un- 
 able to either sell or obtain a loan upon its assets or 
 securities ; when its plant, or road-bed and equipment, as 
 the case may be, is in such condition as to render opera- 
 tion unsafe or impracticable ; or when payments for 
 rentals, loans, cars necessary to conduct traffic, etc., must 
 be made, otherwise involving disintegration of its system, 
 or still further and more disastrous losses in earnings, it 
 
228 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 then becomes necessary to issue these certificates. They 
 must be approved by the Court, and if objection is made 
 to their issuance by security holders, a hearing is granted 
 their attorney or counsel before such approval is granted. 
 
 When receivers' certificates have been duly approved 
 and issued, they take precedence over every other obliga- 
 tion of a company, first mortgage bonds included. They 
 constitute a first lien upon its earnings (excepting only the 
 wages of employees and necessary expenses of operation), 
 and upon its property. 
 
 In the face of any determined opposition from holders 
 of first mortgage bonds or other securities of the company, 
 and the submitting of evidence that such issue of certifi- 
 cates is unnecessary, their issue will hardly be allowed. 
 They seldom cover an amount large enough to jeopardize 
 or imperil the rights of bondholders ; and, as stated above, 
 are issued only to prevent further and greater losses which 
 would ensue from the lack of funds which they are in- 
 tended to raise. 
 
 These certificates, even when put forth by the receiver 
 of the most hopelessly overburdened and overmortgaged 
 company, are generally considered a perfectly safe invest- 
 ment by the most conservative financiers. 
 
 Investment Securities. 
 
 The United States, the different States, counties, 
 townships, cities, villages, and school districts issue bonds 
 payable at a specified date, on the principal of which in- 
 terest is paid at the rate therein specified. These bonds 
 are not secured by a mortgage on any real present value, 
 and their worth consists entirely in the ability of the 
 issuer through its taxing power to meet the obligations 
 incurred. 
 
 States and cities issue also refunding bonds, which are 
 bonds to refund either other bonds, or to secure funds to 
 provide for the payment of outstanding obligations. The 
 
STOCKS, BONDS, ETC. 22$ 
 
 Federal Government, State governments, city and county 
 governments have also in many instances issued bonds to 
 assist in corporate enterprises of a semi-public nature, such 
 as the building of bridges, the laying of railroads, the 
 erection of waterworks, etc. 
 
 Many cities issue bonds to provide for improvements ; 
 and some cities issue special assessment bonds, chargeable 
 against the abutting property. By way of illustration : if 
 they want to pave a street, or make other improvements 
 of a local character in a particular part of the city, the city 
 issues bonds chargeable against the property in the dis- 
 trict benefited, but not against the whole city ; the city 
 merely acting as agent for the collection and payment of 
 interest and principal. 
 
 Many of the States and cities issue Interest Warrants, 
 which are payable within a given time, bearing a specified 
 rate of interest, and are issued to provide needed funds. 
 
 These warrants are either paid at maturity or funded in 
 bonds by their makers. 
 
 
CHAPTER XIII. 
 
 Commercial Houses Commercial Agencies. 
 
 Commercial Houses. In order to form any just esti- 
 mate of the financial operations of any large city, and in 
 fact of the financial institutions, properly so-called, there- 
 in, it is necessary that we should have some adequate 
 idea of the method by which the business of our larger 
 commercial houses is conducted. While it is true that 
 the great variety of business in which these houses are 
 engaged necessitates more or less change in detail, the 
 principles governing the management of the financial 
 part of their business is practically the same in all well 
 conducted houses. 
 
 It will be necessary, however, to give some brief outline 
 of the method by which, first, the indebtedness is created 
 by the selling of goods, before we come to the indebted- 
 ness itself, which constitutes the primary element in the 
 finances of a house, and leads to their first dealings with 
 financial houses. To proceed regularly, we will first con- 
 sider the system under which the house obtains possession 
 of the goods which it sells. 
 
 All large houses are divided primarily into what, for 
 want of a better word, will have to be termed " depart- 
 ments." One, the Buying Department, through which 
 all the goods sold by said house are purchased from vari- 
 ous sources, and the other the Selling Department. Both 
 of these departments, according to the magnitude of the 
 
COMMERCIAL HOUSES. 23! 
 
 business, are of course further divided into sub-depart- 
 ments. 
 
 Buying Department. This department has charge of 
 the goods purchased by the house, and is usually presided 
 over by some member of the firm, who is supposed to be 
 particularly familiar with the character, quantity, and 
 quality of goods which have the readiest sale, and in 
 which the house most extensively deals. In this depart- 
 ment are employed numerous buyers, familiar with the 
 market prices of the particular lines of goods which they 
 have to buy, and whose duty it is to buy such goods as 
 their firm or house may from time to time require, at the 
 best possible prices, and, if occasion offers, to purchase 
 such goods at particularly low prices, in anticipation even 
 of the requirements of their house. These goods are, ac- 
 cording to the finances of the house or according to the 
 probabilities of immediate or remote sale, purchased for 
 cash or on time, it being the policy of most houses to pur- 
 chase for cash only those goods on which they receive a 
 discount for cash, or goods which always have a steady or 
 quick market. As a rule, thirty days is considered cash. 
 These goods, on delivery, are received by the house and 
 assigned to the different departments for which purchased. 
 Each department is charged with the amount of goods so 
 delivered, and credited with the amount sent out by them, 
 the difference between the price paid and the price re- 
 ceived for such goods showing the profit or loss of that 
 department. 
 
 Selling Department. The business of most of the 
 larger houses is largely secured through travelling sales- 
 men, to each of whom a certain territory is allotted. It 
 is the business of these salesmen to travel from place to 
 place endeavoring to secure orders for such goods as their 
 houses sell, and not only are they credited with a com- 
 mission on all goods sold by them personally, but are 
 also generally credited with a commission on goods sold 
 
232 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 to persons residing within their territory. Some houses 
 employ travelling salesmen only on salary, others on both 
 salary and commission. 
 
 Of course all of the large houses have in their stores a 
 number of salesmen on salary, on whose sales no commis- 
 sion is allowed, with which the travelling salesman has 
 nothing to do, and in the amount of which sales he has 
 no interest. 
 
 Upon the receipt of orders not paid for in cash, either 
 from travelling salesmen or in the store, the order is sub- 
 mitted first to the Credit Department, which investigates 
 the standing, ability to pay, and general promptness in 
 meeting his obligations of the purchaser. This informa- 
 tion is usually obtainable from the mercantile agencies, 
 the chief of which are the R. G. Dun & Co. and the Brad- 
 streets, which publish periodically reports of the standing 
 of all merchants in the country whose assets exceed one 
 thousand dollars. -But as these reports are only published 
 quarterly, it often happens that the information given in 
 their publications is several months old, and more recent 
 information is desirable. When such is needed, the credit 
 department asks for a statement up to date of the condi- 
 tion of such purchaser, Avhich information is usually fur- 
 nished, but sometimes the agencies are necessarily delayed 
 in supplying it. A well-managed credit department will 
 not rely entirely upon the reports of mercantile agencies, 
 knowing that often the reports given to these agencies are 
 highly colored, and while not necessarily dishonest and 
 fraudulent, are liable to be influenced by the expectations 
 of the persons of whom such reports are desired, but will 
 make inquiry among the other houses which they think 
 have probably dealt with the purchaser, and if no satisfac- 
 tory information is obtained either from the agencies or 
 from their brother merchants, a letter is written the pur- 
 chaser, asking for letters of reference to persons with 
 whom he has dealt, and usually a letter is likewise written 
 
COMMERCIAL HOUSES. 233 
 
 to the travelling salesman, asking for what information he 
 can furnish. If this information is not satisfactory, and 
 the ability of the purchaser to pay is doubted, a careful 
 credit department will immediately recommend that the 
 order be not filled, and this ends the matter. If, however, 
 the purchaser's credit is good, and his obligations are 
 promptly met, the order is next submitted to the order 
 clerk, by whom the prices at which the goods were sold 
 are approved, or not. If not approved,, the salesman is 
 usually called to account for selling goods below the 
 prices given him in his weekly price-list, which is compiled 
 by these order clerks under the direction of some member 
 of the firm ; or sometimes on their own responsibility 
 alone, and the order is filled or not, according as the 
 prices are acceptable or otherwise. 
 
 Assuming the price to be satisfactory and the credit 
 good, the order is next sent to the various departments 
 and the goods collected together in the Packing Depart- 
 ment, where they are packed for shipment. The packages 
 are then sent down to the Shipping Department, where 
 the shipping clerk ships the same to their destination. 
 
 From the various departments from which the goods 
 are drawn are sent to the Counting-House Department a 
 list of the goods, and these are entered and invoiced by 
 the entry clerks, who make up bills, which are mailed on 
 the date of the shipment of the goods or at the end of 
 the month, according to the practice prevailing in the par- 
 ticular house or the arrangement between the purchaser 
 and the seller. Next, the entries of the entry clerks in 
 total are entered to the debit of the purchaser by the 
 ledger clerks, in the ledger account of the purchaser. 
 
 At the end of the month, or at the time agreed upon, 
 drafts are drawn by the house upon the persons to whom 
 these goods have been shipped. These drafts, according 
 to the necessities of the drawer, are deposited for collec- 
 tion or discount in the bank with which such firm deals, 
 
234 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 and are there entered for collection or to the credit of the 
 house and sent by the bank to their different agents 
 throughout the country. Such drafts as are not paid 
 upon presentation are returned to the bank, charged 
 against the firm's account, if previously credited, and re- 
 turned to the firm, and have either to be made good by 
 the firm or are charged against their account, as stated. 
 
 Most of the large firms allow a small discount for cash 
 payments. 
 
 Commercial Agencies. 
 
 No more striking proof can be adduced of the change 
 in our business and financial methods from those prevail- 
 ing fifty years ago than the very existence of these agen- 
 cies, now so important a factor in our commercial life. Now 
 all careful business men make a most thorough inquiry in 
 regard to the standing of the persons with whom they 
 have dealings, and as this information is necessarily largely 
 supplied through the quarterly reports of these agencies, 
 and as business men know that any one withholding such 
 information from them simply injures himself, they are 
 themselves willing generally to give the agencies the 
 information sought about their business and finances. 
 
 In this country there are two principal agencies, known 
 in almost every village, with branch offices in every city 
 in the States, and also in all the larger towns. These com- 
 panies furnish, in addition to their quarterly publications 
 supplied each subscriber, information in regard to the 
 present standing of any person engaged in business in any 
 part of the United States or Canada. At stated times 
 they gather information as to the standing of persons in 
 their district, which in a condensed form is contained in 
 the agencies' periodical publications. Where later and 
 immediate information is needed they also obtain that, 
 and forward it to the ofHce or person seeking the same. 
 
COMMERCIAL AGENCIES. 23$ 
 
 Almost every trade also has its special agency, which 
 devotes its energies entirely to that particular trade. 
 
 Commercial agencies do not confine their attention 
 solely to the gathering and supplying of information, but 
 are also large collection agencies, besides which their 
 reports of the condition of business, crops, etc., etc., are 
 very generally relied on by both the public and the press. 
 
 Bradstreet's and R. G. Dun & Co. are the agencies re- 
 ferred to, each of whom have offices on Broadway, within 
 a couple of blocks of each other. They issue to their 
 subscribers quarterly a large book, conveniently arranged, 
 giving the names of all men in every part of the country, 
 doing a class of business in which they would probably 
 need credit, and giving their ratings, as indicating by let- 
 ters the amount a man or firm is worth is termed. Should 
 later information than that contained in the last publica- 
 tion be desired, either of these agencies will make every 
 effort to furnish the same to a suscriber. 
 
 While it may be said that credits extended nowadays 
 are largely upon the strength of these reports, yet most 
 of the wholesale houses and banks have credit depart- 
 ments of their own in charge of a man whose principal 
 business is to be thoroughly posted on the credits of the 
 people with whom they deal or are likely to deal, and 
 these " credit men " often seek information from each 
 other, when not satisfied with that given by the agencies. 
 Most large extenders of credit are subscribers to both 
 agencies. 
 
 The agencies require that books furnished subscribers 
 shall be used only by them or their clerks, and any infor- 
 mation furnished a subscriber shall be used only for his 
 benefit ; but these requirements are principally honored 
 in their non-observance. 
 
 To gather, arrange, condense, print, and disseminate 
 the information collected from every town and village in 
 the United States and Canada, and about almost every 
 
236 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 merchant or tradesman in each town, requires a vast num, 
 her of employees scattered all over the country, and this 
 each of the larger agencies has. 
 
 Should information furnished by an agency, except 
 where obtained from the injured person, be injurious to 
 the credit of a person, and such information be proven to 
 be false, the courts have held that he has a cause of action 
 against the agency for the damage he has sustained 
 through the injury thereby done to his credit. Or should 
 credit be extended on the strength of information given 
 by a commercial agency, which information was clearly 
 inaccurate, and the agent of such agency could easily have 
 discovered it to be inaccurate, the agency can be held for 
 the damage thereby suffered. 
 
CHAPTER XIV. 
 
 Transmission and Remittance of Money Money Orders Cheque Banks 
 Commercial Bills Cable and Telegraph Transfers. 
 
 Transmission and Remittance of Money. 
 
 PERHAPS the greatest achievement of modern business 
 and banking is the safety and celerity with which money 
 can be transmitted from person to person and from place 
 to place, although, owing to the high state of develop- 
 ment of the financial systems of the world, the actual 
 shipment of money has been minimized to an extent that 
 but few of us realize. 
 
 While a great many transactions that once required the 
 shipment of money are now adjusted by bills of exchange, 
 yet there is still, especially in domestic transactions in- 
 volving small amounts, a necessity for the sending of 
 the money itself ; and the certainty with which a dollar or 
 a hundred million dollars may be transported has prob- 
 ably done more than anything else to steady and regulate 
 the finances of the world. In this certainty and quick- 
 ness of shipment the steam-engine and the telegraph have 
 been the most potent factors, the telegraph putting the 
 whole financial world in instant communication, the steam- 
 engine, with greater certainty than has ever before been 
 attained by human ingenuity, delivering the merchandise 
 of which the telegraph gave notice. 
 
 The ability of London, New York, Paris, or Berlin, or, 
 in fact, any other city to call upon other cities and coun- 
 
 237 
 
238 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 tries of the world for aid, and their power to instantly ex- 
 tend a similar accommodation, has been one of the most 
 important developments of modern progress, making the 
 financial transactions of the most widely separated coun- 
 tries almost as easy and certain of adjustment and settle- 
 ment as the transactions had between two bankers located 
 in the same city. One result of this rapidity and security 
 of transmission is that the cities or countries which have 
 large amounts of money seeking investment instantly 
 come to the aid of the countries in need of financial 
 assistance, the first desiring to buy and the second to sell 
 or borrow. 
 
 The issue of credits, exchange, is so intimately con- 
 nected with the actual shipment of money as to render a 
 separation of the two here undesirable. Nor is such sep- 
 aration at all necessary, as exchange has already been 
 treated, and only reference will be made to that part of 
 the transmission of money which is accomplished, or 
 rather the actual shipment avoided thereby. 
 
 First, as to actual shipment of money, by which is meant 
 the shipment from one point to another of the money 
 itself. This is done by the various steamship, transpor- 
 tation, and express companies in the same way that they 
 carry other commodities, only greater safeguards are used 
 to insure the safety of the money while in transit. 
 
 1. By registered letter. This is a letter containing the 
 money to be remitted, and is registered and receipted for 
 at the post-office. The receiver of such letter must 
 receipt for the same upon delivery. 
 
 2. By express companies, who carefully count the 
 amount of money to be sent, place the same in an envel- 
 ope, and securely seal the envelope with sealing-wax in 
 the presence of the person remitting. The envelope is 
 then sent to the person to whom addressed, who, upon 
 delivery, must receipt for the same. 
 
 The fact that express companies are known to be the 
 
TRANSMISSION AND REMITTANCE OF MONEY. 239 
 
 carriers of large sums of money, and that those sums are 
 always in a particular car, leads to various train robberies, 
 usually at those seasons of the year when great amounts 
 are remitted from the Eastern money centres to the West. 
 It would seem to be safer to send money in ordinary 
 freight cars, where the location of the particular car, and 
 the box or bundle containing it, which need not be even 
 disclosed to the trainmen or conductor, would render its 
 transit much more secure than the present method, 
 although, of course, the objection would be that this 
 would consume too much time, and the money would be 
 earning no interest during its transit. 
 
 Payments are most frequently made, not by the ship- 
 ment of money, but by a transfer of credits. This has 
 been already dwelt upon at considerable length, and the 
 various ways in which credits are transferred will there- 
 fore only be enumerated here, and reference made to the 
 pages of this book setting forth the same more in detail. 
 
 I. By post-office order, commonly called money orders, 
 which are divided into domestic and international money 
 orders. 
 
 " The maximum amount for which a single money order may 
 be issued at an office designated as a * money order office ' is 
 $100, and at an office designated as a 'limited money order 
 office/ $5. When a larger sum is to be sent, additional orders 
 must be obtained. But postmasters are instructed to refuse to 
 issue in one day to the same remitter, and in favor of the same 
 payee, on any one post-office of the fourth class, money orders 
 amounting in the aggregate to more than $300, as such office 
 might not have funds sufficient for immediate payment of any 
 large amount. Fractions of a cent are not to be introduced." 
 
 The remitter who desires to relieve the payee or his 
 indorsee or attorney from the inconvenience of proving 
 identity at the office of payment, by the testimony of 
 another person, may do so, at his own risk, which waiver 
 is stamped on the order. 
 
240 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 "In the application the given names of the remitter and 
 payee, or the initials thereof, should precede their surnames, 
 respectively. If the payee has only one given name, it should 
 be written in full, if known to the remitter. For example, the 
 name John Jones should be so written, and not as J. Jones. 
 Observance of this rule will tend to prevent mistakes and delay 
 in payment." 
 
 " A money order must not be made payable to more than 
 one person or firm." 
 
 " Names of firms, places, and streets, as well as amounts, 
 should be written in full and in the plainest manner possible. 
 As in many cases there are several post-offices of the same 
 name in different States, the applicant should be very careful 
 to write legibly the name of the State in which the office he 
 means is located." 
 
 The payee named in the order may endorse it to 
 another, but more than one endorsement is prohibited. 
 
 These orders should be collected within a year from the 
 date of issue, to collect after which time it is necessary 
 to apply for a duplicate and again pay the amount of the 
 original fee. 
 
 FEES CHARGED FOR MONEY ORDERS. 
 
 For orders for sums not 
 Over $2.50 and not 
 " 5.00 
 " 10.00 " 
 
 " 20.00 " 
 " 30.00 " 
 " 40.00 
 *' 50.00 '* 
 44 60.00 
 *' 75.00 
 
 exceeding 
 exceeding 
 
 (4 
 II 
 
 " ] 
 
 $2 e.o . 
 
 
 :ents. 
 
 
 i 
 
 i 
 
 
 5.00 . 
 
 5 
 
 IO.OO . 
 
 8 
 
 20.00 . 
 3O.OO . 
 
 . 10 
 
 40.00 
 50.00 . 
 60.00 . 
 
 . 15 
 . . .18 
 . 20 
 
 75-OO . 
 
 25 
 
 :oo.oo . 
 
 ?o 
 
 INTERNATIONAL MONEY ORDERS. 
 
 What has been said in regard to domestic money orders 
 applies, except as below stated : 
 
MONEY ORDERS. 241 
 
 " Remitters will please take notice that the maximum 
 amount for which a money order may be drawn, payable in 
 the United Kingdom, Cape Colony, or British Guiana, 
 is $50." 
 
 " There is no limitation to the number of international 
 orders that may be issued in one day to a remitter, in favor of 
 the same payee." 
 
 11 The postmaster must refuse to issue an international order 
 payable to any person, if the surname and the initial letters of 
 that person's given names are not furnished by the applicant, 
 unless the payee be a peer or a bishop, in which case his ordi- 
 nary title is sufficient. If the payee be a firm, the usual com- 
 mercial designation of such firm will suffice, such as ' Baring 
 Bros.,' ' Smith & Son/ * Jones & Co.' " 
 
 Rates of commission, in United States currency, 
 charged for issuing all international money orders : 
 
 For orders for sums of $10 or less ..... 10 cents. 
 
 Over $10 and not exceeding $20 20 '* 
 
 " 20 " 30 30 " 
 
 " 30 " 40 4O " 
 
 " 40 " 50 50 " 
 
 " 50 " 60 60 " 
 
 " 60 " " 70 70 " 
 
 " 70 " 80 80 " 
 
 " 80 " 90 ..... 90 " 
 
 " 90 " " TOO ..... $I.OO *' 
 
 2. By check, either of an individual or bank, certified 
 or uncertified. (See Checks.) 
 
 3. By cashier's check. (See Cashier's Checks.) 
 
 4. By drafts. (See Drafts.) 
 
 5. By bills of exchange, domestic or foreign. (See 
 Domestic Exchange and Foreign Exchange.) 
 
 For large amounts this is certainly the method most 
 generally employed for the reasons stated in the chapters 
 devoted to those subjects. 
 
 16 
 
242 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 6. By certificates of deposit, receipts from banks or 
 bankers of the deposit of certain sums, made payable to a 
 person designated by the depositor, and payable at the 
 agency of the issuer. (See Certificates of Deposit.) 
 
 7. By letters of credit. (See Letter of Credit.) 
 
 8. By checks issued by the express companies upon the 
 plan described in the article on Cheque Banks. 
 
 9. In Great Britain and Canada by checks of cheque 
 banks. This method does not prevail in this country to 
 any appreciable extent. 
 
 Cheque Banks. Cheque banks operate almost exclu- 
 sively in England, where they were established more than 
 half a century ago. The object of their existence is to 
 furnish persons desiring to remit money other than by 
 post-office orders a convenient mode for so doing, the 
 bank issuing its check to the individual, payable to the 
 person named by him, upon the payment by the pur- 
 chaser of the amount of the check plus a small commis- 
 sion. The checks of these banks, whose business is 
 confined to the issuing of such checks, are largely used 
 by persons not having bank accounts and who cannot 
 therefore send their own checks, and who are not willing 
 to take the risk of sending bank notes, which at present 
 in England are not issued in denominations of less than 
 five pounds, and hence are not suitable for the payment 
 of smaller amounts. By way of illustration, a person 
 desiring to remit, say two pounds, will purchase at a 
 cheque bank their check for that amount payable to the 
 order of a person named, and mail the same to the per- 
 son to whom it is payable, who can cash the same not 
 only at any banker's, but, upon endorsement, at almost 
 any tradesman's. 
 
 After endorsement, these checks pass from hand to 
 hand, just the same as any currency. The check is so 
 prepared that it cannot be raised. 
 
 This system is very largely used in the British Isles, 
 
COMMERCIAL BILLS. 243 
 
 and while at first it was unsuccessful, owing to inefficient 
 management, has since grown to enormous proportions. 
 
 These banks, however, would be of doubtful utility in 
 this country, and hence have obtained but little foot- 
 hold. 
 
 Commercial Bills. Next we will consider Commercial 
 Bills, which are drafts drawn by a person or persons in 
 one country on a person or persons in another, in payment 
 of merchandise received, held for account of, or in transit 
 to the persons against whom they are drawn. 
 
 These bills are either sent directly abroad for collection 
 or sold by the drawer to some dealer in exchange in his 
 city, most frequently the latter. The price at which they 
 are purchased by the dealers is governed by the condition 
 of the exchange market, and the length of time the bills 
 have to run. Those payable on sight are generally pur- 
 chased at the market rate for exchange, and those payable 
 on time at the market rate of the exchange, minus the 
 rate of interest prevailing in the country where such bill 
 is payable, from the date of its purchase to the time of its 
 maturity, which interest is deducted when the bill is 
 purchased. It follows that " time bills," as they are called, 
 are nearly always sold at a discount, as it very rarely 
 happens that the discount on exchange is so great as to 
 offset the interest charges. 
 
 These bills, when offered for sale, should always be 
 accompanied by warehouse receipt, showing the storage 
 of the goods against which they are drawn to the order of 
 the drawee, or bills of lading showing the shipment of the 
 goods to the person against whom the bill is made out, 
 otherwise the purchaser has no evidence that the draft is 
 drawn against any real value. The bill of lading or ware- 
 house receipt is delivered to the purchaser of the draft, 
 so that he may be in a position to enforce the payment 
 of the draft, or hold the goods, and sell them to reimburse 
 himself. 
 
244 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Cable and Telegraph Transfers. The system of 
 the transfer of money by telegraphic order originated 
 during the late war, and at first was confined entirely to 
 domestic business. The inception of the system seems 
 to have been this : a person desiring to remit a sum to 
 another at a distant point, deposited the amount to be 
 remitted with a telegraph office and instructed them to 
 send an order by telegraph to their office at the desired 
 point to pay, to the order of the person named, the sum 
 of money deposited, the person named in such order 
 being also sent a telegram, to call at the office and receive 
 the same. This represents the simplest form of a transfer 
 of money, by telegram, and in this form the business is 
 carried on very largely by telegraph companies. 
 
 The availability of this method of transfer of money, 
 not only in domestic exchange, but also in foreign ex- 
 change, soon became apparent to bankers and commercial 
 men, and if it could be applied successfully by a telegraph 
 company for the transfer of limited amounts, it could 
 certainly be applied to greater advantage by large bank- 
 ing houses or bankers having on hand great sums of 
 money. Probably the next step in the development of 
 this system was the depositing of the actual money with 
 a banker selling telegraphic transfers of money called 
 " cables " and receiving his cable order on his correspond- 
 ent in another city, for the amount purchased, and also a 
 cable to the person in whose favor the order was drawn 
 apprising him of such order and directing him to call and 
 collect the same. Naturally such transfers are effected at 
 a charge proportionate to the rate of exchange then pre- 
 vailing to the point on which the transfer was issued, to- 
 gether with the cable and telegraphic charges necessary to 
 consummate such transfer. 
 
 Telegraph transfers (by which is meant domestic trans- 
 fers) are made either by the telegraph companies them- 
 selves of small amounts, and of larger amounts principally 
 
CABLE AND TELEGRAPH TRANSFERS. 
 
 245 
 
 by banks, whereas cable transfers (by which is meant the 
 transfer of money to foreign countries) are effected 
 through exchange dealers, usually private bankers. 
 
 Most papers, in their commercial news, quote ordinary 
 exchange, commercial bills, and cable transfers. The 
 rates of all three differ for the reasons heretofore given in 
 this work. 
 
CHAPTER XV. 
 
 Notes Endorsements Drafts Bills of Exchange Notary Presentation 
 Protest Notice of Protest Checks Course of Check through a Bank 
 Cashiers' Checks Certificates of Deposit Letters of Credit Table 
 Showing U. S. Treasurer's Valuation of Foreign Coins Table Giving 
 Weight of Alloyed and Pure Metal of Units of Value of Principal Coun- 
 tries. 
 
 Notes. A note is a written or a partly printed and 
 written promise made by one or more persons to pay to 
 one or more persons, named or unnamed, a certain sum 
 of money at a given date. 
 
 Bouvier's Law Dictionary defines a note as "A written 
 promise to pay a certain sum of money, at a future time, 
 unconditionally." This definition, however, does not 
 seem so comprehensive and explicit as that first given. 
 
 And as we are dealing with notes as negotiable instru- 
 ments, we will only consider them when drawn in such 
 form as to hold the maker thereof, for the amount stated 
 in such note, of which the very first element is that the 
 note shall have been given for value, hence all notes 
 should read " Value received." 
 
 The following is the form of note generally used : 
 
 "$ ........ NEW YORK ............. 188 ____ 
 
 " ........ . ............ after date .......... promise to 
 
 pay to the order of ...................................... 
 
 Dollars 
 
 value received. 
 
 No.. Due 
 
NOTES. 247 
 
 It is a well recognized principle of law that a note given 
 without consideration cannot be 'enforced by a person 
 having knowledge of that fact, but a note given, though 
 without consideration, may be enforced by an innocent 
 holder, who purchased the same for a consideration. 
 
 Notes may be drawn by any number of persons, pay- 
 able to one or more persons, and are transferable by 
 endorsement. 
 
 Notes may be endorsed in some nine different ways, 
 each imposing a different liability upon the endorser or 
 endorsers thereof. The different kinds of endorsements 
 are stated with much brevity and clearness by Mr. Bolles 
 in his work on Practical Banking, which we take the lib- 
 erty of quoting. 
 
 " An endorsement may be (i) in full, or (2) in blank ; it 
 may be (3) absolute, or (4) unconditional ; it may be (5) re- 
 strictive ; it may be (6) without recourse on the endorser ; and 
 there may be (7) joint endorsements of the instrument, (8) 
 successive endorsements, and (9) irregular ones. An endorse- 
 ment in full mentions the name of the person in whose favor it 
 is made, and to whom, or to whose order the sum described in 
 the note is to be paid. An endorsement in blank consists 
 simply of the name of the endorser written on the back of the 
 instrument. * The receiver of a negotiable instrument en- 
 dorsed in blank, or any bond fide holder of it, may write over it 
 an endorsement in full to himself, or to another, or any con- 
 tract consistent with the character of an endorsement, but he 
 could not enlarge the liability of the endorser in blank by 
 writing over it a waiver of any of his rights, such as demand 
 and notice.' By an absolute endorsement the endorser binds 
 himself to pay on no other condition than the failure of the 
 prior parties to do so, and of due notice to him of their failure, 
 while a conditional endorsement contains some other condi- 
 tion to the endorser's liability. An endorsement may be so 
 worded as to restrict the further negotiability of the instru- 
 ment ; it is then called a restrictive endorsement. The words 
 
248 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 * for collection,' which are frequently written on notes that are 
 put in a bank to be collected render the endorsement restric- 
 tive. The endorser in such a case may prove that he is 
 not the owner of the note, and did not mean to give a title to 
 it or its proceeds when collected. Such an endorsement 
 merely makes the endorsee agent for the endorser in collecting 
 the note. The sixth kind is a qualified endorsement, or en- 
 dorsement without recourse. This consists in writing the 
 words 'without recourse,' or 'at the endorsee's own risk ' on 
 the back of the note. The endorser is then a mere assignor 
 of the title to the note, and is relieved of all responsibility for 
 its payment. A joint endorsement is made when a note is pay- 
 able to several persons who are not partners. Successive en- 
 dorsements are those made by several persons on a note, the 
 legal effect of which is to subject them as to each other in the 
 order they endorse. The endorsement imparts a several and 
 successive, and not a joint obligation. Lastly may be men- 
 tioned irregular endorsements, which may originate in various 
 ways. But in all cases an endorser guarantees the genuineness 
 of all the preceding endorsements." 
 
 It may be well to add that, in the use of irregular endorse- 
 ments, a person placing his name upon the back of a nego- 
 tiable note or bill is presumed, in law, to have intended to 
 become liable as second endorser, and that on the face of 
 the paper, without explanation, he is regarded as second 
 endorser and therefore not liable to the payee, who is 
 supposed to be the first endorser. The explanation re- 
 quired is that such endorsement was made for the sole 
 purpose of giving the maker credit with the payee. 
 
 Drafts. A draft is a written order drawn by one or 
 more persons in favor of one or more persons on a third 
 person or persons for a specified amount payable at a 
 named date. 
 
 On the next page is given the usual form : 
 
DRAFTS. 249 
 
 " NEW YORK, January 10, 1893. 
 " $1000. 
 
 " Ten days after sight pay to the order of John Doe 
 
 one thousand dollars value received 
 and charge the same to account of 
 
 " Smith, Brown, <^ Co. 
 " No. 1043. 
 
 "To 
 
 " James Stimpson &* Co. 
 
 " Brattleboro, Vt." 
 
 The principal distinction between a check and a draft 
 is that a draft is generally drawn on some person or cor- 
 poration residing or doing business in a different place 
 from that in which the drawer resides, and is dependent 
 for its payment upon the acceptance of the person 
 against whom it is drawn, and who may decline to accept 
 or pay it, and no criminal liability would attach to the 
 drawer, whereas a check is drawn only against a deposit 
 of money or a previously agreed credit, and the drawer 
 of which, should there be no funds to meet it, renders 
 himself liable to criminal prosecution, or the bank or 
 banker refusing to pay such check if there are funds, 
 to a civil action for damages for the injury to the 
 drawer's credit and reputation. 
 
 After a draft is accepted it becomes a promise to pay 
 on the part of the acceptor, and he can be held thereon 
 as on a note. 
 
 Drafts constitute the most common form of domestic 
 exchange and are purchased by both individuals and 
 banks for that purpose. 
 
 They may be transferred to another by the person in 
 
250 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 whose favor they are drawn, by indorsement in any of the 
 different forms given in regard to notes. 
 
 When these drafts are drawn against a person to whom 
 merchandise has been sold or consigned they are known 
 as commercial bills. They sometimes take the name of 
 the produce which they are drawn against ; thus we have 
 " cotton bills " drawn against the sales of cotton, and so 
 on. 
 
 The persons selling or consigning the merchandise 
 draws his draft against the buyer or consignee, and with 
 the order for the merchandise, and the warehouse certifi- 
 cate or bill of lading attached to such draft (technically 
 known as " the papers "), offers the same for sale to his 
 bank, which purchases the same at the market rate of 
 exchange on the place at which the draft is payable, less 
 interest on the amount of the draft from the date of its 
 purchase to its maturity, which is deducted from the 
 amount paid over. The draft is then sent to its place of 
 payment for collection, and when collected the amount is 
 either remitted or credited to the bank. The same bank 
 will also sell exchange on the city at which its draft is 
 payable, but at a higher rate than it will purchase at, as 
 no bank can afford to sell exchange as cheap as it will 
 buy it. 
 
 The dealings in domestic exchange are confined almost 
 entirely to banks, whereas dealings in foreign exchange 
 are conducted almost entirely through private houses, 
 known as Dealers in Exchange. 
 
 Bills of Exchange. The chapter on exchange is de- 
 signed to give the principles governing exchange, rather 
 than the machinery by which such exchange is effected. 
 Hence it is necessary to say a few words about the papers 
 commonly used in the purchase and sale of exchange. 
 
 First will be considered bills of exchange, which are 
 used almost exclusively in foreign exchange, and of which 
 the following is the general form : 
 
NOTARY PRESENTATION. 
 
 " NEW YORK, August i, 1893. 
 " Exchange for ;ioo. 
 
 :< Ten days after sight of this our First of Exchange (second 
 and third of the same tenor and date unpaid) pay to the order 
 of James Brown One Hundred Pounds sterling, and charge 
 the same, without further advice, to 
 
 "DREXEL & Co. 
 "To 
 
 " BARING BROTHERS, 
 
 " London. 
 " No. 420." 
 
 From the above it will be seen that these bills are 
 issued in triplicate, each copy bearing the same number, 
 and upon the payment of one the others are rendered 
 void. The reason for this issuance in triplicate is to pro- 
 vide against loss, two copies being sent, each by a different 
 steamer, or route, and a third retained by the purchaser. 
 These bills are also transferable upon endorsement as in 
 the case of notes and drafts, the person to whom the 
 same is endorsed, or the holder thereof for a considera- 
 tion, being the legal owner. 
 
 " Notary" Presentation, Protest, Notice of Protest. 
 
 In connection with notes, drafts, and bills of exchange, 
 it is very important that some general remarks as to the 
 due presentation, protest, and notice of protest should be 
 made. This necessitates some statement of the duties of 
 the " Notary." 
 
 Presentation. Banks, acting either as principals or 
 collecting agents, as a matter of courtesy and precaution, 
 generally give the makers of notes and the acceptors of 
 drafts and bills of exchange informal notice several days 
 before maturity of the time and place of payment of such 
 paper held by them, by mailing or leaving a notice to that 
 effect at the place where the paper is payable. 
 
 During the morning of maturity if such paper is not 
 
252 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 paid a formal presentation and demand for payment is 
 made by the bank or holder. 
 
 Protest. At the close of banking hours such matured 
 paper as remains unpaid is handed to the notary for pres- 
 entation protest and notice to the endorsers or drawers. 
 The notary should, irrespective of any number of previ- 
 ous presentations, again present the paper at its place of 
 payment before protesting the same. In New York and 
 Brooklyn, however, a number of notaries, particularly 
 those who are officers or employes of the banks for which 
 they act, make no personal presentation, and treating the 
 employes of the banks making formal presentations as 
 their clerks, rely upon such presentations for their protests. 
 In these cases the ordinary certificate of protest which 
 affirms a personal presentation by a notary is obviously 
 false, and, to conform to the facts, should be changed to 
 read " has caused the same to be presented," or it was pre- 
 sented, " by my clerk." In which latter instance, while 
 the protest is probably sufficient to hold an endorser or 
 drawer, proof of presentation can only be made by the 
 person who actually presented the paper. 
 
 Drafts or bills of exchange may and should be protested 
 immediately upon the refusal of the drawee to accept. 
 
 Notice of Protest. In the case of notes notice of pro- 
 test should be mailed or presented the day of protest or 
 early the next business day to the last and each preceding 
 endorser on the protested paper. While the notary has 
 discharged his duty by sending notice to the last endorser 
 only, and the preceding endorsers are thereby held, most 
 careful notaries send notice of protest not only to each 
 endorser, but to the last endorser copies which he may 
 himself send to his prior endorsers. In order that a sub- 
 sequent endorser may maintain an action against his prior 
 endorsers, he should immediately upon or early the day 
 following send a copy of such notice to each preceding 
 endorser. 
 
CHECKS. 253 
 
 Where an endorser whose street address is unknown 
 resides in the city in which the paper is payable, notice 
 addressed thus, " John Jones, New York City, N. Y.," and 
 deposited in the General Post Office, is deemed sufficient. 
 Where the address is known or by due diligence can be 
 obtained it should be placed on the envelope. 
 
 In the case of drafts or bills of exchange notice of pro- 
 test should be mailed the drawer and endorsers as above 
 upon failure of the drawee to accept or pay the same. 
 
 It has been held in the majority of States, and may be 
 taken to be the law generally, that a notice of protest 
 deposited within the proper time in the General Post Office 
 is sufficient notice to charge the drawer or endorsers. 
 This is certainly the law in New York State. The denial 
 of the receipt of a notice of protest in an action on a 
 promissory note or draft clearly avails nothing. The 
 denial must be of the proper mailing or giving of notice. 
 
 Checks. A check is an order, usually on a banker or 
 bank, to pay either to the person in whose favor it is 
 drawn, or some subsequent endorsee the amount stated on 
 its face. Many checks, however, are drawn to " bearer," 
 in which case the bank may pay the amount called for to 
 the person presenting the same without incurring liability 
 in the event of the wrong person obtaining the money. 
 
 The following is the form of check most generally used 
 in New York : 
 
 4< NEW YORK, January 2, 1894. 
 " No. 5 13- 
 
 " NATIONAL BANK. 
 
 " Pay to the order of RICHARD ROE 
 One Thousand Dollars. 
 
 " $1000.00. 
 
 "JOHN DOE." 
 
254 PRINCIPLES- AND PRACTICE OF FINANCE. 
 
 Some banks, however, supply their depositors with 
 what is known as the Chicago check, on which the dollar 
 sign is placed at the end of the line beginning with the 
 words " Pay to the order of." 
 
 Richard Roe, in order to receive payment on his check, 
 or to enable another person to do so, must endorse the 
 check, by writing his name across the back of it. The 
 proper way to do this is to place the check face downwards 
 with the beginning of the lines pointed away from the 
 writer, and then write Richard Roe across the back well 
 toward the top, so as to permit of other endorsements. 
 As a rule, it is very unwise to endorse a check merely 
 with the name of the drawee, unless it is the object of 
 such drawer to have some person unknown to the teller 
 collect the same, in which event any person getting pos- 
 session of the check might collect the money. It is 
 preferable to endorse the check to the person whom it is 
 desired shall be paid, thus : 
 
 " Pay to the order of 
 JOHN BROWN. 
 RICHARD ROE." 
 
 or, if the check is to be deposited, it should be endorsed 
 thus : 
 
 " For deposit in Bank. 
 
 " RICHARD ROE." 
 
 Then should the check come into the possession of a 
 person not entitled thereto, this prevents him from getting 
 the money therefor. 
 
 The signatures on checks have been so often forged or 
 the amounts thereof raised that numerous devices and 
 precautions have been adopted to lead to the immediate 
 
CHECKS. 255 
 
 detection of either, for neither can be prevented. Per- 
 haps the safest way to ensure the immediate detection of 
 the forgery is to have every blank check in the check-book 
 numbered consecutively by machinery; never draw a 
 check out of its regular order, frequently see that no 
 checks have been abstracted, and in case the stubs and 
 the body of the checks are filled out by clerks, sign the 
 checks before they are torn out of the book. Check- 
 books, when not in use, should be locked up in a safe or 
 some other secure place. The check . itself should be 
 always of tinted paper, so that if an acid is used to re- 
 move any portion of the writing that something else may 
 be substituted, the acid will take out the color along with 
 the ink and render discovery easy. 
 
 The method usually adopted in England to prevent the 
 removal of one word or figure and the substitution of 
 another is the employment of chemically prepared check 
 paper, in combination with a chemical ink, when, should 
 the figures or words written on the check be removed by 
 acid, the chemical ingredients of the ink as well as of the 
 paper, combined with the chemicals used to abstract the 
 words or figures, eat a hole in the paper and thus render 
 the insertion of other words or figures impossible. 
 
 Lines should be drawn from the end of the name of the 
 person to whom the check is made payable to the end of 
 the line, so as to prevent the insertion of the words " or 
 bearer." The same thing should be done in regard to the 
 line on which the amount is spelled out, otherwise it is 
 easy to insert some word raising the amount. Numerous 
 plans are tried to prevent the raising of checks. The 
 most common at present is to cut, with a machine con- 
 structed for that purpose, the figures representing the 
 amount of dollars called for, immediately preceded by a 
 dollar sign and followed by a period. This prevents the 
 insertion of any figure between these signs. The amount 
 of the cents is usually omitted. 
 
2$6 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 Another device is to perforate the figures stating the 
 amount with a stamp prepared for that purpose, which 
 renders it difficult to change the amount of the figures. 
 
 Nothing is so difficult to simulate as the natural hand- 
 writing, and any teller will say that strained and artificial 
 signatures, even when intricate and embellished with 
 many flourishes, are much easier to forge than those 
 written in the ordinary hand. 
 
 In reference to intermediate endorsements of a check, 
 while it is advisable that the receiving or paying teller, as 
 the case may be, should exercise care to such an extent 
 as to see that they have been properly made, and that the 
 check is rightfully in the hands of the person presenting 
 the same for payment or deposit, still it is not possible 
 that a teller should be acquainted with the genuineness of 
 each intermediate endorsement, nor is it necessary, as he 
 is not likely to pay a check to a person unknown to him, 
 and if the check is received for deposit and returned, the 
 depositor's account will simply be charged with the 
 amount of such check which formed a part of his credit. 
 
 Checks should be deposited for collection, or cashed, 
 certainly within two days of their receipt, and preferably 
 the same day, where possible, as procrastination in this 
 matter may render the collection impossible. 
 
 Persons receiving uncertified checks for large amounts 
 should take them immediately to the bank and have them 
 certified. Such checks are generally certified previous to 
 payment, and if not, as a rule should be. 
 
 Course of a Check through a Bank. The person to whom 
 a check is given presents the same to the paying teller for 
 payment at the bank, who, if the presenter is properly 
 identified, and the drawer's account shows a sufficient net 
 credit, pays the check, which is then charged upon a book 
 kept by him for that purpose, to the account of the 
 drawer, and is then handed over to a clerk who takes the 
 same, along with others, to the bookkeeper keeping the 
 
CERTIFICATES OF DEPOSIT. 257 
 
 depositors' ledger in which the name of such drawer would 
 appear. The bookkeeper charges the same to the account 
 of the drawer and files the check. At the end of the 
 month or at some stated period when the drawer's passbook 
 is balanced, the amount of the check is entered on a slip, 
 on one side of which are the credits and on the other side 
 the amount of the checks drawn, which, along with the 
 checks marked " Paid " and the pass book in which the 
 balance is recorded, are then returned to the depositor. 
 
 Cashiers Checks. These are checks issued by banks 
 over the signature of the Cashier for the payment of the 
 sum of money stated therein. They are frequently pur- 
 chased by persons desiring to remit money, and constitute 
 perhaps one of the commonest forms of exchange. The 
 object of their purchase is that the check of a bank is a 
 more readily transferable instrument than the check of an 
 individual, even when certified. It is usually drawn upon 
 a particular bank, and the charge made therefor is the pre- 
 vailing rate of exchange upon the city on which it is 
 payable. 
 
 Certificates of Deposit. Certificates of Deposit are 
 often used as a means of transmitting money, and are, of 
 course, necessarily transferable on endorsement. 
 
 They are really nothing but receipts from banks that 
 certain amounts of money have been deposited, which 
 they will on demand repay either to the depositors or to 
 some person named in writing by the depositor on the 
 face of such certificate. 
 
 A certificate of deposit can also be made payable in 
 whole or in part at some agency of the bank, by the bank 
 directing such payment on its face. 
 
 This, however, is not a very frequent method of trans- 
 mitting money, being much more troublesome and no 
 better than a certified check. It is used mostly by peo- 
 ple who either do not have, or do not intend to keep in 
 the bank issuing the same, a regular account. 
 
258 PRINCIPLES AND PRACTICE OF FINANCE. 
 The following is the common form of such certificate : 
 
 THE NATIONAL BANK OF 
 
 ., Mass., i8/_ 
 
 _ha__ deposited in this Bank 
 . Dollars 
 
 payable to the order of. 
 
 on the return of this Certificate properly endorsed. 
 
 No.. 
 
 Cashier. 
 
 Letters of Credit. A Letter of Credit is a letter is- 
 sued by one or more persons, usually a firm of bankers, 
 addressed to one or any number of persons who may or 
 may not be named therein, authorizing them to pay to 
 the person or persons in whose favor it is drawn, the 
 whole or any part then due of the amount for which it 
 is issued, and guaranteeing the repayment to the persons 
 or firms making such advances. 
 
 The usefulness of these letters to travellers consists 
 in the fact that being drawn not against a single house, 
 but practically against every banker in the world, the 
 traveller is not compelled, as in the case of a bill of 
 exchange, to present the same at but one specified place 
 and receive the whole amount it calls for in one cur- 
 rency, but may present it wherever and whenever he 
 pleases, during the time for which it is drawn, and real- 
 ize on it the amount he may then need in the currency 
 of the country where he is, thereby entirely doing away 
 with the inconvenience and insecurity of carrying large 
 sums of money about his person, and avoiding the fre- 
 quent change from one currency to another, for which a 
 commission in the shape of a discount on the amount 
 paid is always charged. 
 
LETTERS OF CREDIT. 
 
 Depending for their value, as these letters necessarily do, 
 upon the financial standing and reputation of the issuer, 
 whose credit to that extent has been purchased by the 
 holder of the letter, it is of the utmost importance that 
 these letters should only be purchased from firms of the 
 best and widest reputation, for while a less well known 
 firm may be equally sound financially, and the holder of 
 its letter have no difficulty in realizing on it from the 
 issuer's correspondents or where the issuer is known, still 
 such a letter could not be so generally used as one issued 
 by a better known house. 
 
 The following is the ordinary form of the first page : 
 
 CIRCULAR LETTER OF CREDIT. 
 
 No. g 11212. 
 
 o-/ etz.cn e^ii^^. mttid &e indcii/efd ort, &t& <&etc& of 
 
 v ft 11 ^K. 
 
 tAit te&et tana! to- tnid- i&6 w-fdSi. fa ^f$k*C Mo-ui. dfiecta./ tztte^io^. G/nid. 
 tettei. i&e& 4n.o4e.t& ve ce&n-cewed tzw&Qdtezcsi-eed to- 
 
 6ee to- it tneit tne-. e^&fa- &e j-itzneed in, 
 
 cc-mAt&te t&e dii&ntzttUe w^n^ trie 
 
 * * f 
 
 k cU ent/em, - ~ 
 
26o 
 
 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 The second page, on which the amounts paid the holder 
 of such letter are recorded, is as follows : 
 
 Date 
 
 
 Name 
 
 Amount Paid 
 
 Amt. 
 
 When 
 
 By Whom Paid. 
 
 of 
 
 Expressed 
 
 in 
 
 Paid. 
 
 
 Town. 
 
 in Words. 
 
 Fig's. 
 
 Apr. 
 
 10 
 
 Brown, Shipley, & Co. 
 
 London. 
 
 Twenty-five pounds. 
 
 *s. 
 
 
 
 27 
 
 Credit Lyonnaise. 
 
 Lyons. 
 
 Ten pounds. 
 
 " 10 
 
 May 
 
 16 
 
 Munroe & Co. 
 
 Paris. 
 
 Fifty pounds. 
 
 " 50 
 
 Aug. 
 
 4 
 
 Knauth, Nachod,&Kuhne. 
 
 Leipzig. 
 
 Fifteen pounds. 
 
 " 15 
 
 
 
 
 
 
 100. 
 
 Attached to these letters, either as a third page, or as a 
 separate paper, is a list of the various correspondents or 
 agents of the firm issuing the letter. Along with each 
 letter goes a check book, the blank checks in which are 
 addressed to the maker of the letter. 
 
 It will be observed by glancing at the fac-simile given 
 above of one of these letters, that it contains the sig- 
 nature of the holder, which, of course, presents an easy 
 means of identification, as he thereby has in his possession 
 the thing by which he can always be identified. A fur- 
 ther and safer means, and one which should be adopted, 
 would be to imprint on each letter a photograph of the 
 person in whose favor it is issued. 
 
 These credits are not necessarily issued only to indi- 
 viduals, but may be issued to several persons. 
 
 Practically all sellers of these letters will issue them 
 upon a deposit of cash, upon guarantee of payment of 
 amounts drawn, or upon a deposit of marketable securi- 
 ties. On all letters for less than ^500 a commission of I 
 per cent, is charged. (These letters are nearly all drawn 
 in sterling, as that is the most generally used currency.) 
 Letters for a sum in excess of ^500 are issued against a 
 deposit of cash, without charge, but no interest is 
 
LETTERS OF CREDIT. 26 1 
 
 allowed on the cash so deposited, unless the same exceed 
 1000. 
 
 In case the letter is issued against a deposit of securi- 
 ties, and the securities have to be sold to make good the 
 payment on such letter, the usual brokerage is charged, 
 or in case interest on the securities is collected, a charge 
 of one fourth of one per cent, is made for such service. 
 
 Whatever part of the amount for which the letter 
 is drawn remains to the credit of the holder is payable to 
 him on demand either at the home office or that of any 
 agent or correspondent. 
 
 The manner of using such letter is so simple as to 
 require but brief explanation. The holder, when in want 
 of funds, refers to the list of agents and correspondents 
 attached to his letter, selects the one in the place where 
 he may be, draws his check against the issuers of such 
 letter on one of the blanks furnished him in the check 
 book, presents his letter and check, and the check is 
 cashed in the currency of the country in which it is pre- 
 sented, and the amount in sterling is charged on the 
 letter. 
 
 Although it is preferable to present these letters to the 
 correspondents of the issuer, should there be none in the 
 place where the holder happens to be, he can procure 
 what funds he needs thereon from almost any bank or 
 banker. 
 
 The person or firm making advances on the letter, 
 writes the issuers thereof, mentioning the number of the 
 letter enclosing the check of the holder for the amount 
 paid, together with his or their charges, and the same is 
 remitted them. 
 
 Naturally, in the case of agents or correspondents who 
 pay a large number of checks on different letters, and 
 themselves draw letters on which the first house men- 
 tioned also makes advances, periodical statements are 
 made and balances remitted. 
 
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 263 
 
264 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 The above table is issued on the first days of January,, 
 April, July, and October in each year. 
 
 The above table, it must not be assumed fixes the inter- 
 changeable market value of coins, it is merely a statement 
 of what the Federal Government estimates them as worth 
 for the purpose of valuing imports. 
 
 The value of gold coin to gold bullion is unchangeable so 
 long as the weight of pure metal in the coins remains the 
 same, and while the value of silver coin to silver must follow 
 the same law, the value of silver coin in gold bullion 
 changes so rapidly and the fluctuations are so great as to 
 necessitate a table showing the weight of pure metal in 
 coins in order to determine their value. With the weight 
 of pure metal known, and the gold price of silver per 
 ounce quoted daily in the newspapers, the gold value of 
 silver coins can be readily ascertained by dividing the 
 portion of an ounce which a coin weighs into the quota- 
 tion. The following table (No. 2, p. 266) gives the weights 
 of both alloyed and pure metal. 
 
 In United States money the value of an ounce of pure 
 gold is $20.67. To ascertain the value of any gold coin 
 divide the portion of an ounce it constitutes into 20.67. 
 
 The relative value of coins to each other can be deter- 
 mined in the same way. 
 
 The weights both of alloyed and pure metal given in 
 Table No. 2 are of coins as they come from the mints. 
 
 From a study of this table it will be seen that while 
 the names of the coins which are the monetary units in 
 different countries differ, they are in many cases of the 
 same weight and fineness. Thus in the case of France, 
 Belgium, Italy, Switzerland, and Greece, comprising the 
 Latin Union, in France, Belgium and Switzerland this 
 unit is the franc, in Italy it is the lira, and in Greece 
 the drachma. In none of these countries, however, 
 is the franc, the lira, or the drachma legal tender except 
 to a limited sum. The 5-franc, 5-lira, or 5-drachma piece 
 
DECIMAL GOLD AND SILVER WEIGHT TABLE. 26$ 
 
 (silver) is the lowest denomination of coin which is legal 
 tender. 
 
 In the case of Denmark, Norway, and Sweden, compris- 
 ing the Scandinavian Union, the krone or crown is the 
 unit, the gold coins are the 2O-crown and the lo-crown 
 piece, the silver coins are the 2-crown and I crown, the 
 50, 40, 25-, and io-6re pieces. 
 
 In Bolivia, the Central American States consisting of 
 Costa Rica,Guatemala, Honduras, Nicaragua, and Salvador, 
 in the U. S. of Colombia (in Ecuador, called the " Sucre "), 
 and in Peru the silver peso of 385.800 grains alloy .900 
 fine, or 347.220 grains pure silver, forms the monetary unit. 
 
 The weight, wherever obtainable, has been expressed 
 in grains, but in the currencies of France, Belgium, Italy, 
 Greece, Switzerland, constituting the Latin Union, and 
 Denmark, Norway, and Sweden, the Scandinavian Union, 
 the German Empire, Portugal, Spain, and Turkey it is 
 shown in grammes. 
 
 DECIMAL GOLD AND SILVER WEIGHT TABLE. 
 
 I Gram or 15.43235 grains 
 
 10 Grams I Dekagram = 154.3225 " 
 
 IO Dekagrams = i Hectogram = 1543.2348 
 jo Hectograms = I Kilogram = 15432.34874 
 
 Taken from The World's Metal Monetary Systems. 
 

 
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 267 
 
CHAPTER XVI. 
 
 Interest Grace Legal Holidays. 
 
 Usury, penalty of, forfeiture of 
 interest. Grace allowed. Legal holidays : Sundays, January 1st, February 
 22d, April 26th, July 4th, Thanksgiving day, Good-Friday, Mardi Gras, 
 and Christmas. If any of these days, except Mardi Gras, falls on Sunday, 
 the following Monday is the legal holiday. Paper entitled to days of grace 
 or subject to protest falling due on a holiday becomes legally due on the 
 next succeeding business day. 
 
 Arizona. Legal rate of interest 7 %. Contract rate unlimited, No 
 usury law. Protest unnecessary if suit is begun within sixty days of date 
 when payment is due. Grace allowed on notes and bills of exchange. 
 Legal holidays : same as New York, except first Monday in September, 
 and Saturday half-holiday. Paper falling due on holidays or Sundays is col- 
 lectible on the next business day. 
 
 Arkansas. Legal rate 6 %. Maximum contract rate 10 %. Usurious 
 contracts are void, both as to principal and interest, and negotiable paper 
 tainted with usury is void in the hands of an innocent holder. Judgments 
 bear same rate of interest as contracts on which they are recovered, 'except 
 judgments against counties which bear no interest. Grace, three days. 
 No holidays peculiar to the State. Notes and bills due on Sunday, Christ- 
 mas, and July 4th must be presented the business day previous. But notice 
 of protest need not be given until the day after such days. 
 
 California. Legal rate 7 %. Contract rate unlimited. Judgments bear 
 7 % interest. No grace. Legal holidays : same as New York, except Sep- 
 tember gth in place of first Monday in September, and no Saturday half- 
 holiday. 
 
 Colorado. Legal rate 8 %. Contract rate unlimited. County orders 
 and warrants draw 8 $, State warrants 6$. No usury laws. Legal holidays : 
 same as New York, except no Saturday half-holiday. Same provision as in 
 case of New York should holidays fall on Sunday, except that paper is pay- 
 able the previous business day. On notes and bills of exchange three days' 
 grace. 
 
 268 
 
INTEREST GRACE LEGAL HOLIDAYS. 269 
 
 Connecticut. Legal contract rate 6 %. Usury, penalty, forfeiture of 
 interest in excess of legal rate to any one except the borrower suing within a 
 year. Grace, three days. When either day of grace expires upon a legal 
 holiday, the paper is collectible the business day preceding such holiday. 
 No legal holidays peculiar to the State. 
 
 Delaware. Legal and contract rate 6 %. Usury, penalty, forfeiture of a 
 sum equal to the amount lent. Grace, three days on all bills payable at a 
 future date. When third day of grace falls on a holiday or Sunday, presen- 
 tation and payment to be made the preceding business day. When holiday 
 falls on Sunday, paper maturing on Monday must be presented the previous 
 Saturday. 
 
 District of Columbia. Legal rate 6$. Maximum contract rate 10$. 
 Usury, penalty of, recovery of whole interest paid by action brought within 
 year after payment. Legal holidays : January ist, February 22d, Inaugu- 
 ration day (every fourth year), May soth, July 4th, first Monday in Sep- 
 tember, Thanksgiving day, and December 25th. Grace not allowed. 
 
 Florida. Legal rate 8 %. Maximum contract rate 10 %. Contracts for 
 more than 10 % void, interest forfeited. Double amount of interest over 10 % 
 paid to any holder may be recovered by maker from payee. Legal holidays : 
 January ist, February 22d, June 3d, July 4th, first Monday in September, 
 December 25th, Election days Federal and State, Thanksgiving day. 
 Negotiable paper due on holidays presentable and payable the preceding 
 business day. Grace not allowed. 
 
 Georgia. Legal rate 7 %. Maximum contract rate 8 %. Usury, 
 penalty of, forfeiture of excess of interest over 8 %. Judgments bear 
 7 % interest on the principal recovered. No grace on sight paper. Protest 
 unnecessary to hold endorser, except when payable at a bank or banker's 
 office, when grace shall be allowed. Legal holidays : January ist, January 
 igth, February 22d, April 26th, July 4th, December 25th, and other days 
 appointed by the President or Governor. Paper due on holidays to be 
 presented the preceding business day. 
 
 Idaho. Legal rate 10$. Maximum contract rate 18 %. Compound in- 
 terest allowed. Usury, penalty of, 10$ of debt. No grace. Paper due on 
 Sundays or holidays payable next business day. No special holidays. 
 
 Illinois. Legal rate 5 %. Contract rate 7 %. Usury, penalty, forfeiture 
 of interest. No grace on sight demands, three days on other instruments. 
 Legal holidays : same as New York, except no Saturday half-holiday. Paper 
 due on holidays payable preceding business day. 
 
 Indian Territory. Same as Arkansas. 
 
 Indiana. Legal rate 6 %. Maximum contract rate 8 %. Usury, when 
 paid, can be recovered from the payee. Grace, three days, allowed on all 
 paper. Legal holidays : same as New York, except no Saturday half-holiday. 
 Paper due on a holiday payable preceding business day. 
 
270 PRINCIPLES AND PRACTICE OF FINANCE, 
 
 Iowa. Legal rate 6 %. Maximum contract rate 8 %. Usury, penalty, 
 forfeiture of 10 % of contract. Judgments bear rate of interest of contracts 
 on which recovered. Grace allowed. No special holidays. 
 
 Kansas. Legal rate 6 %. Maximum contract rate 10 %. Usury, 
 penalty, forfeiture of double the amount of all interest over 10 %. Grace, 
 three days. Legal holidays : Sundays, July 4th, December 25th, Janu- 
 ary ist, Thanksgiving. Paper due on a holiday is payable the preceding 
 business day. 
 
 Kentucky. Legal rate 6 %. Usury, penalty, forfeiture of excess of 
 interest over 6 %. Three days' grace. Paper due on Sundays or legal holi- 
 days payable preceding business day. 
 
 Louisiana. Legal rate 5$. Contract rate 8#, although parties may 
 agree to even a higher rate, which may be collected. After maturity of 
 obligation any stipulation for higher rate than 8 % forfeits entire interest. 
 Judgments bear rate of interest of the debts on which they are recovered. 
 Grace, three days, except on sight bills, on which no grace is allowed. 
 Paper due on a legal holiday is payable the next succeeding business day. 
 Legal holidays : January 1st, 8th, February 23d, Mardi Gras, 4th of March 
 in New Orleans, July 4th, December 25th, Sundays, and Good-Friday. 
 
 Maine. Legal rate 6 %. Contract rate unlimited. Judgments bear 6 %. 
 Grace, three days, except on demand paper. Paper, the last grace day of which 
 is on a legal holiday, is payable the preceding business day, except where 
 two holidays come together, the last of which constitutes the other grace 
 day ; or, if one of the other days falls on Sunday and is the second grace 
 day, four days of grace are allowed. Legal holidays : same as New York, 
 except Election days and Saturday half-holiday. 
 
 Maryland. Legal and contract rate 6 %. Usury, penalty, forfeiture of 
 excess over actual value of goods and chattels lent. Grace, three days. 
 Legal holidays : same as New York, except that Good-Friday is observed as 
 a legal holiday and the first Monday in September is not a legal holiday, 
 and no Saturday half-holiday. Paper due on a legal holiday is payable pre- 
 ceding business day. 
 
 Massachusetts. Legal rate 6 %. Contract rate on loans not in excess 
 of $1000, maximum 18 $, provided contract is in writing. Corporate bonds, 
 maximum 7 %. Three days' grace allowed on all paper in the absence of a 
 statement to the contrary. 
 
 Michigan. Legal rate 6 %. Maximum contract rate 8 %. Usury, pen- 
 alty, forfeiture of interest. Grace, three days, on all but demand paper. 
 Paper falling due on a legal holiday payable preceding secular day. 
 
 Maximum contract rate (when expressed 
 Interest in excess of 10 % or compound interest pro- 
 
INTEREST GRACE LEGAL HOLIDAYS. 2/1 
 
 hibited. Usury, penalty, recovery of all interest paid in excess of 10 % with 
 costs of action if action is brought within two years after payment. Bonds, 
 bills, notes, assurances, conveyances, chattel mortgages, and other contracts 
 whereby a greater sum than 10 % is charged for the loan are void. This 
 does not apply in the case of unmatured negotiable paper. Grace allowed 
 except where stipulated to the contrary. No grace on demand paper. Ac- 
 ceptances must be in writing. Legal holidays : Sundays, Thanksgiving day, 
 Good-Friday, Christmas day, New Year's day, 22d of February, 4th of 
 July, or the following day when any of the above named days falls on Sun- 
 day. Paper falling due on a holiday becomes payable and notice of protest 
 shoulo* t>e given the preceding business day, but notice of dishonor, non- 
 payment, or non-fulfilment may be given the business day succeeding such 
 holiday. 
 
 Mississippi. Legal rate 6 %. Maximum contract rate 10 %. Usury, 
 penalty, forfeiture of interest. Notes not considered protestable paper. 
 Bills must be protested. Legal holidays : Sundays, July 4th, Christmas 
 day, Thanksgiving, and New Year's. 
 
 Missouri. Legal rate 6 %. Maximum contract rate 8 %. Judgments 
 bear rate of interest of contracts on which recovered. Open accounts bear 
 6 % interest from time of demand to payment. On contracts bearing usuri- 
 ous rate only legal rate is recoverable and defendant is allowed costs of 
 action. No grace allowed on sight bills or orders. No written assignment 
 of a note or bill is necessary to entitle the holder to sue. Legal holidays : 
 January 1st, February 22d, July 4th, Thanksgiving day, general Election 
 days, December 25th, and Sundays. Where a holiday other than a Sunday 
 falls on Sunday, the Monday following is observed as a holiday. Paper due 
 on holidays or Sundays is payable the succeeding business day, unless such 
 holiday be a Sunday, when the paper becomes due the day previous. 
 
 Montana. Legal rate 10 #, which is the rate collectible after debt is 
 due. Contract rate unlimited. No usury law. Three days' grace allowed 
 on bills and notes except when the last day of grace falls on a Sunday or 
 legal holiday, in which case payment must be made the preceding business 
 day. No grace on sight diafts or checks. 
 
 Nebraska. Legal rate 7 %. Maximum contract rate 10 %. Judgments 
 bear same rate of interest as contracts upon which they are recovered. 
 Usury, penalty, forfeiture of interest. A note bearing 10 % from date to 
 maturity and 24 % from maturity until paid not deemed usurious, the 24 % 
 being regarded as a penalty of non-payment. Compound interest allowed 
 upon provision to that effect in the paper. Grace, three days, on all but de- 
 mand paper. Legal holidays : same as New York except no Saturday half- 
 holiday and the addition of April 22d as a holiday. Same provision as in 
 New York in regard to paper due on a holiday. 
 
 Nevada. Legal rate 7 %. Contract rate unlimited. Interest allowed 
 only on original claim. Grace not allowed. 
 
2/2 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 New Hampshire. Legal rate 6 , Usury, penalty, forfeiture of three 
 times excess of interest charged. Contract not invalidated by usury. Grace 
 allowed except on sight paper. Legal holidays : same as New York, except 
 the omission of January 1st and Saturday half-holidays. Paper due on a 
 holiday is payable the preceding business day and must be then presented 
 and if not paid protested. 
 
 New Jersey. Legal rate 6 %. Usury, penalty, forfeiture of all interest 
 and payment of costs. Grace three days. Twenty-four hours additional 
 allowed for notice of dishonor. Legal holidays and provisions in regard to 
 payment of paper then due same as New York. 
 
 New Mexico. Legal rate 6 %. Maximum contract rate 12 %. Open 
 running accounts from six months after date of last item bear 6 %. Judg- 
 ments carry same rate as contracts on which they are founded. Usury, 
 penalty of, forfeiture of double the amount of interest received, upon action 
 brought within three years. A fine is also inflicted for usury. Grace al- 
 lowed on notes same as on inland bills of exchange according to custom of 
 merchants. Legal holidays : Sundays, January 1st, July 4th, December 
 2$th, and all days proclaimed by the Governor as thanksgiving or fast days. 
 Paper falling due on any holiday is payable the next succeeding business 
 day. 
 
 New York. Legal rate 6 %. Except bottomry and respondentia bonds 
 and contracts, and call loans (see State Banks, page 105), all contracts or 
 agreements bearing a higher rate of interest than 6 % are even in the hands 
 of an innocent third party void. Corporations cannot set up usury as a de- 
 fence. By the Penal Code, Sec. 378, usury is made a misdemeanor. Ex- 
 cess of interest over legal rate may be recovered by the borrower by action 
 brought within a year from date of payment. Town overseers or county 
 superintendent of the poor may bring action within three years. An equity 
 suit may be brought by a borrower or his assignee for the benefit of creditor, 
 but not by other assignee, agent, or devisee to discover if usury has been 
 paid, or to declare void a usurious instrument. 
 
 State banks and private bankers are placed on the same footing in regard 
 to interest as national banks, and forfeit double the excess of interest 
 charged above the legal rate. 
 
 No grace. 
 
 Legal holidays : January ist, February 22d, May 3Oth, July 4th, Decem- 
 ber 25th (when any. of these days fall on Sunday the Monday following is 
 made the legal holiday), the first Monday in September, any general Election 
 day, every Saturday after 12 M., and any day appointed by the President of 
 the United States or the Governor of the State as a day of thanksgiving or 
 fasting. 
 
 Paper falling due on holidays or Sundays must be presented on the im- 
 mediately following business day, except that paper falling due on Saturday 
 
\ 
 INTEREST GRACE LEGAL HOLIDAYS. 273 
 
 may be presented at or before 12 noon, when if not paid, to protest the 
 same and hold the obligors, presentation, demand, and notice of protest or 
 dishonor may be made the first following business day. 
 
 North Carolina. Legal rate 6 %. Maximum contract rate in writing 
 8 %. Judgments bear rate specified in contract on which recovered. Pen- 
 alty for usury, forfeiture of interest. Payee may recover excess beyond legal 
 rate of interest by suit brought within two years. Bonds, bills, and notes 
 governed by custom of merchants in England. Three days' grace. Legal 
 holidays : January 1st and igth, February 22d, May roth and 2Oth, July 4th, 
 December 25th, and a Thanksgiving day to be fixed by the Governor. If 
 any of said days falls on Sunday, the following Monday shall be deemed a 
 public holiday, and paper due on such Sunday is payable on Saturday pre- 
 ceding, and paper which would otherwise be payable on said Monday shall 
 be payable on Tuesday thereafter. When any of the above named holidays 
 falls on Saturday, paper due on Sunday following is payable on Monday 
 following. Whenever any of said holidays falls on Monday, paper other- 
 wise payable on that day is payable on succeeding Tuesday. 
 
 North Dakota. Legal rate 7 %. Maximum contract rate 12 %. Any 
 rate in excess of 12 % is deemed usurious and warrants the forfeiture of all 
 interest so taken, and the payee may recover double the amount paid. The 
 National Bank Act provision in regard to usury obtains. Three days' grace 
 allowed on bills of exchange or drafts and on all promissory notes. Sundays 
 and holidays excluded in computation of days of grace. 
 
 Ohio. Legal rate 6 %. Maximum contract rate 8 %. A higher rate than 
 8 % cannot be collected, and on a contract bearing such higher rate the prin- 
 cipal sum and 6 % only can be recovered. Three days' grace except on sight 
 paper. If third day of grace be Monday, demand must be made on the next 
 preceding business day. Legal holidays : same as New York, except Satur- 
 day half-holiday and the first Monday in September, which for the presenta- 
 tion and demand of negotiable paper is not a legal holiday. 
 
 Oklahoma Territory. Legal rate 7 %. Contract rate 12 %. Judgments 
 bear 7 %. Grace, three days, on time paper. 
 
 Oregon. Legal rate 8 %. Contract rate 10 %. Judgments bear rate of 
 contract upon which they are recovered. Usury, which is charging a higher 
 rate than 10 #, is punishable by forfeiture of principal sum and costs of ac- 
 tion. No grace. Paper payable on a holiday due the next business day. 
 Legal holidays : same as New York, except Saturday half-holiday. 
 
 Pennsylvania. Legal rate 6 %. Savings banks not confined to legal 
 rate. Commission merchants and agents may agree with parties outside of 
 the State for 7 %. Usury, penalty of, forfeiture of interest, and when paid 
 recovery by suit brought in six months. Grace allowed. Acceptances in 
 excess of $20 to be in writing. A written promise on a note to pay a com- 
 
274 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 mission as a collection fee in case of non-payment destroys negotiability. 
 Legal holidays : January ist, February 22d, Good Friday ; May 3oth, when 
 on Sunday, Saturday preceding is the legal holiday ; July ist, the first Sat- 
 urday of September, Election days, September 25th, Saturday half-holiday. 
 When holidays, except May 3Oth, fall on Sunday, the Monday following 
 becomes the legal holiday. Paper due on a legal holiday is payable the next 
 business day. The third Tuesday of February (Spring Election day) and 
 the first Tuesday after the first Monday of November (Fall Election day^ 
 are legal half-holidays after 12 o'clock. 
 
 Rhode Island. Legal rate 6 %. Contract rate unlimited. Judgments 
 bear 6 %. Debts, in the absence of a contract to the contrary, bear 6 %. 
 Grace allowed. Paper falling due on Sunday or a legal holiday is payable 
 the next business day. Legal holidays : July 4th, Christmas day, February 
 22d, May 3Oth (when any of these days fall on Sunday the following Mon- 
 day becomes the legal holiday), the first Wednesday in April, the first Tues- 
 day after the first Monday in November on every even year, Arbor day, 
 and Thanksgiving and Fast days State or National. 
 
 South Carolina. Legal rate 7 %. The charging of a greater rate than 
 8 % involves the forfeiture of double the amount of interest charged. The 
 receipt of usurious interest renders the lender further liable to an action for 
 double the amount of interest received. This may be pleaded by way of 
 counterclaim. Grace allowed. Legal holidays : Sundays, January 1st, 
 February 22d, July 4th, December 25th, 26th, and 27th, first Monday in 
 September, Thanksgiving, and all general Election days. Paper falling due 
 on a holiday is payable the next business day. 
 
 South Dakota. Legal rate 7 %. Contract rate 12 %. Usury, penalty, . 
 forfeiture. Also a misdemeanor punishable with a fine of $500 or six 
 months' imprisonment or both. Interest begins to run on open account 
 from date of last item. Judgments bear 7 %, Grace allowed. Sundays 
 and holidays excluded in computing grace. Legal holidays : none peculiar 
 to State. 
 
 Tennessee. Legal rate 6 %. Usury, penalty, forfeiture of interest, also 
 a misdemeanor. Grace except on sight paper. Paper falling due on ist 
 January, 4th of July, 25th of December, or any National or State Fast or 
 Thanksgiving day, is payable the day previous, unless such day is Sunday, 
 when it becomes payable the preceding Saturday. 
 
 Texas. Legal rate 6$. Maximum contract rate 10$. Penalty of 
 usury, forfeiture of interest. When paid, double the amount of interest may 
 be recovered by suit brought within two years. Grace allowed. Legal 
 holidays : January ist, February 22d, March 2d, April ist, July 4th, Decem- 
 ber 25th, Thanksgiving, State and National general Election days. If any 
 of these days fall on Sunday, the Monday following is the legal holiday. 
 Presentation of paper may be made the Saturday before. 
 
INTEREST GRACE LEGAL HOLIDAYS. 2/5 
 
 Utah Territory. Legal rate 8 %. Contract rate unlimited. Judgments 
 bear rate of interest of contracts on which they are recovered. No grace 
 allowed. Acceptances must be in writing. Legal holidays : Sundays, 
 January 1st, February 22d, first Saturday in April, May soth, July 4th and 
 24th, first Monday in September, December 2 5th, and Thanksgiving or Fast 
 days. If holidays fall on Sunday, Monday following is observed. 
 
 Vermont. Legal rate 6%. Usury, penalty, forfeiture of excess over 
 legal rate. Judgments bear 6$. No grace allowed on paper made and 
 payable in this State. Paper due on Sundays or legal holidays payable fol- 
 lowing business day. 
 
 Virginia. Legal rate 6 %. Corporations not limited to this rate. Usury, 
 penalty, forfeiture of all interest. When usurious interest is paid upon 
 contract it is credited as part payment of principal. Judgments bear 6%. 
 Corporations cannot plead usury. Grace allowed on all save sight paper. 
 Legal holidays : January 1st and igth, February 22d, July 4th, first Mon- 
 day in September, December 25th, Thanksgiving and Fast days. Paper due 
 on a Sunday or legal holiday is payable the preceding business day. Holi- 
 days falling on Sunday are observed the Monday following. 
 
 Washington. Legal rate 8 %. Contract rate unlimited. Grace, three 
 days, allowed on all paper unless paper contains an expressed stipulation to 
 the contrary. Where the last day of grace falls on a holiday the holiday is 
 not counted and the paper is payable the preceding business day. Legal 
 holidays : Sundays, July 4th, December 25th, January 1st, February 22d, 
 Decoration day, general Election and Thanksgiving days. 
 
 West Virginia. Legal rate 6 %. Usury may be pleaded and excess of 
 interest over legal rate forfeited. Corporations not limited to legal rate. 
 Judgments bear 6 %. Paper due on Sunday or a legal holiday is payable the 
 preceding business day. Notice of protest however need not be given until 
 the following business day. Legal holidays : January 1st, February 22d, 
 July 4th, day of national Thanksgiving, and Christmas. Grace allowed. 
 
 Wisconsin. Legal rate 6$. Maximum contract rate 10$. Contracts 
 reserving more than 10$ valid for principal only. The payer of more than 
 10 % interest may recover triple the amount paid. Paper maturing on a legal 
 holiday payable the preceding business day. 
 
 Wyoming. Legal rate 12 %. Contract rate unlimited. Unsettled ac- 
 counts bear interest after thirty days. Grace allowed. Legal holidays : 
 January ist, February 22d, May isth, July 4th, Thanksgiving day, and 
 December 25th. 
 
 In the case of paper due in a State other than the one 
 in which the holder resides, the best course to pursue is 
 
2/6 PRINCIPLES AND PRACTICE OF FINANCE. 
 
 to deposit the same in his local bank for collection, the 
 bank forwarding the paper to the place of collection and 
 becoming responsible to the depositor for any omission of 
 duty on its or its agents' part whereby any obligor may be 
 released from payment. 
 
 In the case of obligations maturing in a State not the 
 domicile of the maker, the best course is to deposit with 
 the local bank funds sufficient to meet the same, directing 
 them to take up the paper. 
 
 This subject is more fully treated in various parts of 
 this work, especially in drafts, checks, bills of exchange, 
 and transmission of money. 
 
GLOSSARY. 
 
 A 
 
 ABANDONEE 
 
 The person to whom a right or thing is relinquished, surrendered, or 
 abandoned. 
 
 ABANDONER 
 
 One who abandons. 
 
 ABANDONMENT 
 
 Surrender or relinquishment of a privilege, right, or possession. 
 (Marine law) The abandonment by the master or owner of his ship 
 and its freight to a creditor in satisfaction of a contract. (Marine 
 insurance) The surrender to the insurers of such remaining portion of 
 the insured property after the happening of the event insured against. 
 This is done to hold the insurer for the total amount of the insurance. 
 (Customs) The abandoning of dutiable goods to the government to 
 escape payment of duties. 
 
 ABATEMENT 
 
 Reduction. The measure of decrease. Refunding of duties. The 
 amount deducted from the first amount of a tax bill. 
 
 ABBAS 
 
 An Eastern weight for pearls, supposed to be 2^ grains Troy. 
 
 ACCEPTANCE 
 
 The obligation of the drawee to pay a draft or bill of exchange, 
 generally evidenced by his writing the word " Accepted," and his 
 signature on the paper the payment of which is assumed. Accept- 
 ances are "general" when unlimited by any qualifying words, 
 " special " when payable at a specified time and place, and " qualified ' r 
 when accepted for a less sum than is named on the face of the paper, 
 "supra protest " or "for honor," when accepted by a person not the 
 drawee to save the honor or credit of the drawer or an endorser after 
 refusal of the drawee to accept. Also the paper accepted, or the sum 
 named therein. 
 
 277 
 
2/8 GLOSSARY. 
 
 ACCOMMODATION ENDORSER 
 
 An endorser who, without consideration or protection, endorses the 
 paper of another not payable to himself. 
 
 ACCOMMODATION PAPER 
 
 Negotiable paper drawn, accepted, or endorsed without consideration 
 by one to enable another to obtain credit or raise money on it. 
 
 ACCOUNT 
 
 A statement of the items and amounts due by one person to another 
 for goods, services, etc. ; a course of business dealings. 
 
 ACCOUNTABLE RECEIPT 
 
 A receipt of money or goods to be accounted for. 
 
 ACCOUNT CURRENT 
 
 (Open Account) A course of business dealings still continuing. 
 
 ACCOUNT RENDERED 
 
 A statement presented by a creditor to his debtor, showing the charges 
 of the former against the latter. 
 
 ACCOUNT SALES 
 
 A statement rendered by a broker, factor, or agent to his principal. 
 
 ACCOUNT STATED 
 
 An account or statement which has been acknowledged as correct by 
 the debtor, or to which he has not objected within reasonable time, 
 showing the result of a course of transactions. 
 
 ACKNOWLEDGMENT 
 
 A written admission made before an officer empowered to take 
 acknowledgments, such as a notary, commissioner, or judge, stating 
 that the person making the same executed the paper for the "pur- 
 poses therein stated," etc. ; generally attached to bonds, mortgages, 
 deeds, etc. 
 
 .ACT OF HONOR 
 
 An instrument executed by a person not the drawee, after protest of 
 draft or bill of exchange, to save the honor or credit of any party 
 thereto. 
 
 ACTUARY 
 
 An expert in the application of the doctrine of annuities, especially 
 with reference to insurance. Commonly one of the principal officers 
 of life insurance companies, whose duties are principally to deduce 
 from statistics, data, mortuary tables, etc., the value of contingent 
 .assets, the amount of accruing indebtedness, the proper premium 
 charges, and to furnish statements of the company's condition. 
 
GLOSSARY. 2/9 
 
 ADJUDICATE 
 
 To decide, to award, to settle. 
 
 ADJUDICATION 
 
 Award, decision. 
 
 ADJUST 
 
 To settle ; to agree upon. 
 
 ADJUSTMENT 
 
 (In marine insurance) The ascertaining and agreeing upon the final 
 indemnity to which the insured is entitled, also the part of such 
 indemnity for which each insurer is liable. 
 
 ADMINISTRATOR 
 
 (Legal) One who by virtue of authority from a proper court has 
 charge of the personal property of an intestate. 
 
 AD VALOREM DUTY 
 
 A tax calculated and imposed upon the value, and not upon the 
 weight, numbers, or packages of dutiable articles. 
 
 ADVANCE NOTE (or Bill) 
 
 A draft or demand on the owner or agent of a ship or vessel. Wages 
 paid to sailors by the master or agent of a vessel on the signing 
 of articles. 
 
 ADVANCES 
 
 Payments made on consignments before sale of the merchandise con- 
 signed. Loans on bills of lading ; the delivery of a value before an 
 equivalent is received ; contributions to capital or stock ; increase in 
 price. 
 
 ADVENTURE 
 
 A commercial venture or enterprise in which one or more merchants 
 are concerned for their individual or joint account. 
 
 ADVENTURE (BILL OF) 
 
 A document issued by and bearing the signature of a merchant, ship- 
 owner, or his agent, indicating that merchandise aboard a particular 
 vessel is at the risk of another person, the maker of such bill being 
 liable solely for its safe delivery. 
 
 ADVICE 
 
 Information from one or more persons to others interested in a joint 
 transaction ; as notices, letters, drafts, or demands drawn, etc. 
 
 AGENCY 
 
 The office or place of business of an agent, factor, or representative 
 also the powers or duties of such agent, factor, or representative. 
 
280 GLOSSARY. 
 
 AGENT 
 
 One acting in place or as the representative of another. 
 
 AGIO (also spelled AYGIO) 
 
 Premium of exchange ; premium or percentage of a better sort of 
 money when it is given in exchange for an inferior sort. The pre- 
 mium or discount on foreign bills of exchange is sometimes called 
 agio (Webster). The premium on depreciated currencies is called 
 disagio, also the depreciation in value owing to abrasion of coins. 
 
 AGIOTAGE 
 
 Rate or price of exchange ; speculation in exchange, bullion, stocks, 
 etc. 
 
 AGREEMENT (MEMORANDUM OF) 
 
 An instrument or document written or printed bearing the signatures 
 of the parties thereto, stating the subject of their mutual contract. 
 
 AGREEMENT OF INSURANCE 
 
 A contract preliminary to the issue of the policy between the insurer 
 and the insured, in regard to the terms and time of delivery of the 
 policy. 
 
 ALLOWANCE 
 
 A deduction for tare, tret, breakage, etc. A limited deviation from 
 exact conformity to the legal standard in the fineness and weight of 
 
 ALLOY 
 
 v. The introduction of a baser metal into a more valuable one to 
 decrease its value, n. The combination of a less valuable with a 
 more valuable metal or metals. 
 
 ANNUITY 
 
 A sum payable yearly, to continue for a number of years, for life, or 
 for ever ; an annual allowance (Webster). 
 
 APPORTIONMENT 
 
 A dividing into proportions or shares. 
 
 APPRAISAL 
 
 See Appraisement. 
 
 APPRAISE 
 
 To fix a price upon, to set a value. The price or value set by ap- 
 praisers named by individuals or appointed by law. 
 
 APPRAISEMENT 
 
 Act of appraising ; the price set on a value or service. 
 
GLOSSARY. 28l 
 
 ARBITER (ARBITRATOR) 
 
 A person to whom parties have referred their differences for decision ; 
 a referee, an umpire. 
 
 ARBITRAGE 
 
 The agreed relative value of coin, currency, stocks, or bonds. 
 (Enc. Brit.) Arbitrage proper is a separate, distinct, and well defined 
 business, with three main branches. Two of these, viz. , arbitrage or 
 arbitration in bullion and coins, and arbitration in bills, also called 
 the arbitration of exchanges, fall within the business of bullion deal- 
 ing and banking respectively. The third, arbitrage in stocks and 
 shares, is arbitrage properly so called, and is understood whenever the 
 word is mentioned without qualification among business men. 
 
 ARBITRATION 
 
 The referring for decision of a controversy or dispute to an arbitrator 
 or arbitrators, or referee or umpire. 
 
 ARBITRATION BOND 
 
 A bond binding a party or the parties to a dispute or controversy to 
 accept the decision of the person or persons to whom such question is 
 referred. 
 
 ASKING PRICE 
 
 The price at which a value or right is offered for sale. 
 
 ASSIGN 
 
 To surrender or transfer to another (the assignee). In matters of 
 bankruptcy the instrument by which this transfer is effected is known 
 as an assignment. 
 
 ASSIZEMENT 
 
 The inspection by a person legally authorized and empowered, called 
 an assizer, of weights and measures and the qualities of commodities. 
 
 ASSOCIATION 
 
 A union incorporated or unincorporated of persons for a common 
 purpose. 
 
 ASSOCIATION, ARTICLES OF 
 
 The contract under which members of an association join together for 
 a common purpose. 
 
 ASSURANCE (Insurance) 
 
 A contract for the payment of a sum on the occurrence of a certain 
 event, as loss, death, etc. 
 
 ASSURED 
 
 The person or persons in whose favor a policy of insurance is written. 
 
282 GLOSSAR Y. 
 
 ATTORNEY 
 
 A lawyer ; a counsellor at law. 
 
 ATTORNEY IN FACT 
 
 One appointed to act in the place or stead of another. 
 
 ATTORNEY, POWER OF 
 
 The instrument by which such appointment is made. 
 
 AVERAGE 
 
 " A contribution made by all the parties concerned in a sea adventure, 
 according to the interest of each, to make good a specific loss or 
 expense incurred for the benefit of all, sometimes called ' general 
 average.' A small duty paid by shippers of goods to the master of 
 the ship over and above the freight, in consideration of his special 
 care of the cargo, noted in bills of lading by the phrase ' With primage 
 and average accustomed.' " (Wor.) 
 
 AVERAGE ADJUSTER 
 
 (Marine Insurance) A skilled accountant employed to average or 
 ascertain the amount to be paid by each of the parties interested in 
 the loss sustained for the general account. 
 
 AVERAGE BOND 
 
 (Marine Insurance). A bond of consignees of cargo given to the 
 owner or master of a vessel guaranteeing when ascertained the amount 
 of their contributions to a general average. 
 
 AVERAGE, FREE OF 
 
 A list of articles excepted from liability to particular average on the 
 part of underwriters, which is generally attached to policies of marine 
 insurance. 
 
 AVERAGE OF ACCOUNTS 
 
 The average date on which accounts fall or become due. 
 
 AWARD 
 
 The decision of arbitrators, referees, or umpires. 
 
 B 
 
 BALANCE 
 
 The difference between the creditor and debtor sides of an account ; 
 the sum necessary to make the debtor and creditor sides equal. 
 
 BALANCE OF TRADE 
 
 Excess in value between exports and imports of a country. 
 BALLAST 
 
 Any comparatively valueless material carried in a vessel for the 
 purpose of making it draw sufficient water to enable it to be navigated 
 to advantage, and on which a trifling or no freight is paid. 
 
GLOSSARY. 283 
 
 BANCO 
 
 In some countries where banks keep their accounts in a currency other 
 than that in common use ; the money in which such account is kept. 
 
 BANK 
 
 (P. 68) An institution for receiving and lending money. 
 
 BANK ACCOUNT 
 
 A sum deposited in a bank, which may be drawn out on the depositor's 
 written order. 
 
 BANK BILL 
 
 A bank note, a note, bill, or draft, or demand by one bank on another. 
 
 BANK BOOK 
 
 The book in which the depositor receives credit for amounts deposited 
 and in which his drafts or checks are charged. 
 
 BANK CREDIT 
 
 A credit extended by a bank. 
 
 BANKER 
 
 (See p. 178) The officer of a bank, or one who deals in money or 
 credits. 
 
 BANKER'S NOTE 
 
 The note of a private banker or unincorporated bank. 
 
 BANK HOLIDAY 
 
 In Great Britain a holiday on which banks are allowed to be closed. 
 Obligations due on this day are usually payable the next secular day. 
 
 BANK NOTE 
 
 A demand promissory note issued by a bank by authority of law (see 
 Money of the United States, p. 60). 
 
 BANK POST BILL 
 
 A bill issued for not less than ten pounds by the Bank of England 
 without charge. 
 
 BANKRUPT 
 
 An insolvent person ; one whose estate is being administered by a 
 receiver or assignee for the benefit of his creditors. 
 
 BANKRUPTCY, ASSIGNEE IN 
 
 The assignee of the property of a bankrupt. 
 
 BANKRUPTCY, INVOLUNTARY 
 
 When declared on the petition of creditors, showing the bankrupt 
 should not be continued in possession of his estate, is termed invol- 
 untary. 
 
284 GLOSSARY. 
 
 BANKRUPTCY, REGISTER IN 
 
 An officer appointed by and under the. control of the Court to adjudi- 
 cate upon the affairs of bankrupts. 
 
 BANKRUPTCY, VOLUNTARY 
 
 When declared on the petition of the bankrupt, asking leave to trans- 
 fer or assign his estate for the benefit of creditors, is called voluntary. 
 
 BANK STOCK 
 
 Stock issued by a bank. 
 
 BARGAIN 
 
 A contract or agreement between two or more parties. 
 
 BARRATRY 
 
 (Wor.) Act or offence of the master of a ship or of the marines, by 
 which the owners or insurers are defrauded. 
 
 BARTER 
 
 (See Barter, p. 3.) 
 
 BARTERER 
 
 One who barters or traffics in commodities. 
 
 BAUBEE 
 
 (Wor.) A half-penny. 
 
 BAZAAR 
 
 A market-place. 
 
 BEAR 
 
 (See Brokers.) One who contracts to sell stocks, provisions, or com- 
 modities, or things, not owned by him, to be delivered at a future 
 time, for a certain price, and is consequently interested in depressing 
 their value ; one who is endeavoring to decrease the price of a stock 
 or commodity. 
 
 BETTERMENTS 
 
 Improvements on real property, other than ordinary repairs, which 
 add to its value. 
 
 BID 
 
 An offer. 
 
 BILL 
 
 A statement of the items and amounts of articles or values furnished, 
 or of services rendered by one person to another. 
 
 BILL OF ADVENTURE 
 
 (See Adventure, Bill of.) 
 
GLOSSARY. 285 
 
 BILL OF CREDIT 
 
 A notification by one person to another to extend to the person 
 named in the bill the credit therein stated. 
 
 BILL OF COSTS 
 
 An itemized statement of the taxable costs of a litigant. 
 
 BILL OF ENTRY 
 
 A statement, written or printed, signed by the importer, of goods 
 entered at a custom house. 
 
 BILL OF EXCHANGE 
 
 (See page 38.) 
 
 BILL OF HEALTH 
 
 A certificate by the proper authorities as to the state of health in a 
 vessel on leaving or arriving in port. 
 
 BILL OF LADING 
 
 A receipt given to shippers by vessels or transportation companies, 
 setting forth the goods placed in their care for transportation. 
 
 BILL OF PARCELS 
 
 An account of goods sold given by the seller to the buyer, containing 
 the quantities and prices of the articles, with a statement of the date 
 and terms of credit. (Wor.) 
 
 BILL OF SALE 
 
 An instrument conveying the right, title, or interest in personal 
 property. 
 
 BILL OF SIGHT 
 
 A form of entry at the custom house by which goods, respecting 
 which the importer is not possessed of full information, may be pro- 
 visionally landed for examination. (Wor.) 
 
 BILL OF STORES 
 
 A custom-house license permitting merchantmen to carry free of cus- 
 toms duties stores and provisions necessary for a voyage. 
 
 BILL OF SUFFERANCE 
 
 A coasting license permitting vessels to trade from port to port with- 
 out paying customs duties, the dutiable goods being landed at suffer- 
 ance wharves. 
 
 BILLS PAYABLE 
 
 The outstanding unpaid notes or acceptances made and issued by an 
 individual or firm. 
 
 BILLS RECEIVABLE 
 
 The unpaid promissory notes or acceptances of others held by an 
 individual or firm. 
 
286 GLOSSARY. 
 
 BI-METALL1C 
 
 A double metallic monetary system, as gold and silver. 
 
 BLANK 
 
 A printed form containing unfilled spaces or lines to be filled in to 
 suit the particular occasion. 
 
 BOND 
 
 A written obligation under seal to do or refrain from doing a certain 
 act or thing. When a penalty is attached for failure to perform the 
 contract, the bond is known as a " penal bond." 
 
 BOND 
 
 (See Stocks, Bonds, etc., page 209.) 
 
 BONDED DEBT 
 
 That part of the debt of a corporation represented by its outstanding 
 bonds. 
 
 BONDED WAREHOUSE 
 
 A building licensed by the customs authorities to receive and keep 
 goods in store prior to the payment of customs or internal-revenue 
 duties thereon. 
 
 BOND FOR LAND 
 
 (or bond for a deed) A bond given by the seller of land to the one 
 agreeing to buy it, binding him to convey on receiving the agreed 
 price. 
 
 BOND, IN 
 
 Goods in bond are in charge of the customs authorities, and are stored 
 in a bonded warehouse or store. 
 
 BOND OF INDEMNITY 
 
 A bond conditioned to indemnify the obligee against some loss or 
 liability. 
 
 BOOK OF ORIGINAL ENTRY 
 
 A book in which the first written entry of a transaction is made, such 
 as the blotter or sales books, in which entries are or should be made 
 at the time of the sale or transaction. 
 
 BOOKKEEPER 
 
 An accountant ; one who keeps books. 
 
 BOOKS 
 
 In commerce technically means only the Ledger, Journal, Day Book, 
 Cash Book, Bills Receivable, and Bills Payable, or books the entries 
 in which are taken from other books or memoranda. 
 
GLOSSARY. 287 
 
 BOOKS OF ACCOUNT 
 
 Books containing a record of the pecuniary dealings of a person or 
 persons. In cases of corporations used in contradistinction to the 
 records, or books in which a record of the meetings, resolutions, etc., 
 of their stockholders and Board of Directors is kept. 
 
 BOTTOMRY 
 
 Borrowing money on a pledge of the bottom of the ship as security. 
 
 BOTTOMRY BOND 
 
 A mortgage of the ship as collateral for a loan. 
 
 BOUNTY 
 
 A premium offered by the government to men engaged in certain 
 industries, such as the bounty at one time paid to sugar growers. 
 When paid to steamship companies it is generally called a subsidy. 
 
 BROKER 
 
 (See page 182.) 
 
 BULL 
 
 One whose aim is to raise the price of stocks or merchandise. 
 
 BULLING 
 
 Raising or trying to increase the price of stocks, etc. 
 
 BULLION 
 
 (See page 13.) 
 
 BUYER THREE 
 
 A technical expression used in Wall Street, meaning the purchase 
 must be consummated in three days. 
 
 C 
 
 CALL 
 
 A summons or request from a superior officer of a government or 
 corporation requiring representatives or others to assemble. An 
 assessment on the stockholders of a corporation or joint-stock com- 
 pany, or members of a mutual insurance company, for the payment 
 of assessments on insurance policies, or in the case of other corpora- 
 tions for the payment of instalments of their unpaid subscriptions, or 
 for their promised, or legally liable, contributions for losses. A 
 request to holders of bonds to present the same for payment and 
 cancellation. 
 
 CALL LOAN 
 
 A loan subject to payment on the call and demand of the lender. 
 
288 GLOSSARY. 
 
 CAPITAL 
 
 (Page 27.) The wealth employed in carrying on a particular trade, 
 manufacture, business, or undertaking ; stock in trade ; the actual 
 estate, whether in money or property, which is owned or employed 
 by an individual, firm, or corporation in business. In the case of a 
 corporation it is the aggregate of the sum subscribed and paid in, or 
 secured to be paid in, with the addition of undivided gains. Gen- 
 erally speaking, sums received from the sale of stock are capital, 
 whereas those received from sales of bonds are not capital, but 
 borrowed money. 
 
 CAPITALIST 
 
 One who has capital ; a man of large property. 
 
 CAPITALIZE 
 
 To supply with capital. 
 
 CASH 
 
 Ready money ; money at hand or at command. 
 
 CASH CREDIT 
 
 A credit to an agreed amount extended by a banker, generally on 
 deposit of security or guarantee of repayment. 
 
 CASHIER 
 
 One who has charge of cash. 
 
 CHANGE 
 
 Exchange, barter. Also, an abbreviation for Exchange, a meeting- 
 place. Coins of lower denominations. The sum of money handed 
 the seller in excess of the price of the article sold. 
 
 CHARGE 
 
 A demand, a claim. The price of an article, right, or service. 
 
 CHARGES, OUTWARD 
 
 The pilotage and other charges incurred by a vessel leaving port. 
 
 CHARTER 
 
 The instrument granted by a superior power to an inferior, defining 
 the latter's rights and powers, as the charters granted by States to 
 cities, towns, and corporations. 
 
 CHARTER PARTY 
 
 A written agreement by which a ship owner lets a vessel to another. 
 
 CHATTEL 
 
 Any movable property or goods, as money, stocks, bonds, furniture, 
 plate, horses, etc. Everything but real estate or a freehold. 
 
GLOSSARY. 289 
 
 CHATTEL MORTGAGE 
 
 A mortgage on chattels. 
 
 CHECK 
 
 (See page 253.) 
 
 CHECK-BOOK 
 
 A book containing blank checks and stubs. 
 
 CLAIM 
 
 A demand. The amount of anything demanded. 
 
 CLAIMANT 
 
 One making claim or demand. 
 
 CLEAR 
 
 To free from encumbrance or detention. In the case of a vessel the 
 furnishing and procuring the necessary customs papers, and such 
 compliance with port regulations as will permit the vessel to " clear" 
 or sail. In the case of goods, the payment of duties or taxes neces- 
 sary to relieve them from governmental restraint. 
 
 CLEARING 
 
 The daily balance of banks' demands against each other at the 
 Clearing House. The sailing of a vessel. 
 
 C. O. D. 
 
 Collect on delivery. 
 COLLECTOR 
 
 A Federal officer empowered to collect customs duties. A person 
 
 employed to collect. 
 
 COLLUSION 
 
 Secret agreement for a fraudulent or harmful purpose. 
 
 COMMERCE 
 
 Barter, trade, exchange, traffic. Foreign commerce is that carried 
 on between nations. Inland trade (commonly called '* Domestic " or 
 " Internal trade") is an exchange of commodities within the territory 
 of one country. 
 
 COMMERCIAL PAPER 
 
 Bills of exchange, drafts, notes, etc. , drawn against the purchaser of 
 merchandise. 
 
 COMMISSION 
 
 (Wor.) A document or writing investing one with authority. The 
 order by which one person buys or sells goods, securities, etc., for 
 another. The percentage or compensation which an agent, factor, 
 salesman, commission merchant, or broker charges or receives for 
 services. Two or more persons appointed for the doing or investi- 
 gating of a particular thing. 
 
290 GLOSSARY. 
 
 COMMISSION AGENT 
 
 An agent who transacts business for others on commission. 
 
 COMMISSIONER 
 
 One empowered to act in some matter or business for one or more 
 persons or a government. 
 
 COMMISSIONER OF DEEDS 
 
 A person authorized by a State or country to take acknowledgments 
 of deeds, etc. 
 
 COMMISSION MERCHANT 
 
 One who buys or sells goods for another on commission, or who acts 
 as agent in buying and selling, receiving for his services a commission. 
 
 COMMON CARRIER 
 
 Railroads, express companies, steamship lines, and others engaged in 
 the business of carrying persons or freight. 
 
 COMPANY 
 
 (Page 200.) 
 
 COMPARISONS 
 
 (Stock Exchange.) The act of comparing the sellings and purchases 
 of stock by the different sellers and buyers. 
 
 COMPLAINANT 
 
 A plaintiff, a claimant, the person who begins a suit. 
 
 COMPOSITION 
 
 An agreement between a debtor and his creditors, by which the latter 
 accept in full payment of their claims a portion of the amounts due. 
 The sum or rate paid or agreed to be paid in compounding with 
 creditors. 
 
 COMPOSITION DEED 
 
 A contract between creditors and their debtor effecting a composition, 
 usually in a manner to bind the creditors not to molest the debtor. 
 
 COMPOUND 
 
 (See Composition and Compromise.) 
 
 COMPROMISE 
 
 . Mutual concession. The agreement arrived at. 
 
 CONSIGNEE 
 
 The person to whom a commodity, right, or thing is consigned. 
 
 CONSIGNMENT 
 
 The goods forwarded by a consignor. 
 
GLOSSARY. 291 
 
 CONSIGNOR 
 
 One who consigns or entrusts merchandise to another. 
 
 CONSOLS 
 
 A term used to denote a considerable portion of the public debt of 
 Great Britain, more correctly known as the three per cent Consoli- 
 dated Annuities. 
 
 CONSUL 
 
 An official agent of a government, accredited to a foreign power, 
 whose office is to protect the commercial interests of the country he 
 represents. 
 
 CONTINGENT 
 
 The interest of a particular party in a joint speculation or business 
 venture. 
 
 COUPON 
 
 An order attached to bonds for the payment of interest. 
 
 CREDITOR 
 
 One who extends credit to another ; one to whom another is 
 indebted. 
 
 CUSTOM HOUSE 
 
 A Federal building or office where vessels and merchandise are 
 entered, and duties upon dutiable imported goods are collected. 
 
 CUSTOM-HOUSE BROKER 
 
 A person who acts for others in the entry or clearance of ships, the 
 entry and payment of taxes on merchandise, and the transaction of 
 custom-house business generally. 
 
 CUSTOMS 
 
 Import duties, as distinguished from internal- revenue duties ; taxes 
 collected at a custom house. 
 
 DEBENTURE 
 
 (Wor.) A custom-house certificate, entitling the exporter of imported 
 goods to a drawback of the duties paid on their importation. An 
 instrument in some government departments by which the govern- 
 ment is charged to pay to a creditor or to his assigns the sum found 
 due on auditing his accounts. 
 
 DEBT 
 
 That which one person owes to another. (Wor.) A sum of money 
 due by certain or express agreement. 
 
292 GLOSSARY. 
 
 DEBTEE 
 
 A creditor. 
 
 DEBTOR 
 
 (Wor.) One who owes anything to another. 
 
 DECISION 
 
 (Wor.) The judgment or determination given by a judicial tribunal ; 
 the report of such determination. 
 
 DECLARATION 
 
 A publication, statement, or formal announcement (thus declaration 
 of dividends). The paper, message, or letter by which the declara- 
 tion is made. 
 
 DECREASE 
 
 An allowance by the revenue officers to importers of liquors for loss 
 by leakage while in bond, on which loss no duty is charged. 
 
 DEDUCTION 
 
 Taking away ; abatement ; the thing or amount deducted. 
 
 DEED 
 
 A writing authenticated by the seal of the person whose mind it 
 purports to declare. More specifically such a writing made for the 
 purpose of conveying real estate. 
 
 DEFAULT 
 
 A failure to perform within the agreed time an agreement, contract, 
 or condition, as default in interest. 
 
 DEFAULTER 
 
 One who fails to properly account for or make return of values 
 entrusted to his care. 
 
 DEFENDANT 
 
 In law the person against whom redress is sought ; the one accused 
 of wrong, the person attacked, the one defending. 
 
 DEFICIENCY 
 
 Lack of the necessary quantity or amount ; the sum required to make 
 up a given amount. 
 
 DEFORCIATION 
 
 A seizure of goods for the satisfaction of a lawful debt. 
 
 DEFRAUDER 
 
 A swindler, a cheat ; one guilty of fraud. 
 
 DEFRAY 
 
 To compensate for, settle, pay. 
 
GLOSSARY, 293 
 
 DEKADRACHM 
 
 (Ten drachm.) An ancient silver coin of the value of ten drachms. 
 
 DEL CREDERE 
 
 The guarantee of a factor or agent to his principal of the credit or 
 solvency of the persons to whom the goods of such principal are sold. 
 Also used to indicate the reinsurance by one insurance company of 
 its policies in another. 
 
 DEL CREDERE COMMISSION 
 
 A commission charged for guaranteeing the credit or solvency of 
 persons to whom goods are sold. 
 
 DELEGATE 
 
 A person appointed or sent by another in his interest to perform a 
 certain act. 
 
 DEMURRAGE 
 
 A per diem allowance granted to the owner or his agents for the 
 detention in port of a vessel beyond the time named in the charter 
 party. 
 
 DEPARTMENT 
 
 (Web.) Subdivision of business or official duty. One of the princi- 
 pal divisions of executive government. 
 
 DEPONENT 
 
 (Web. ) One who deposes or testifies under oath ; one who gives 
 evidence ; usually one who testifies in writing. 
 
 DEPOSIT 
 
 (Web.) To lodge, place, or put in one's hands for safe keeping ; to 
 commit to the custody of another. Also the thing deposited. 
 Money lodged with a party as earnest or security for the performance 
 of a duty assumed by the person depositing. 
 
 DEPOSITARY 
 
 The receiver of a thing in trust. 
 
 DEPOSITION 
 
 Written evidence taken before a duly authorized person. 
 
 DEPUTY 
 
 A substitute, a lieutenant ; a representative ; an assistant. 
 
 DERELICT 
 
 A thing voluntarily abandoned or cast adrift ; a ship abandoned at 
 sea. A tract of land from which the sea has receded, and fit for cul- 
 tivation or use. 
 
294 
 
 GLOSSAX Y. 
 
 DERELICTION 
 
 The act of abandoning with intention not to reclaim. A receding of 
 the sea whereby land is gained. 
 
 DESPATCH 
 
 (Marine Insurance) A certificate setting forth the value of a ship 
 and her cargo liable to contribution in case of a loss incurred for the 
 common benefit. 
 
 DEVIATION 
 
 (Marine Insurance) A wilful departure from a ship's allotted course, 
 forfeiting insurance. 
 
 DIFFERENTIAL DUTY. 
 
 (Also Discriminating Duty) A higher duty levied and collected on 
 certain merchandise when imported indirectly from the country 
 where it is produced than when imported directly. A higher tonnage 
 duty on vessels not owned by citizens of the importing country than 
 on vessels owned wholly or in part by such citizens. 
 
 DIRECTOR 
 
 One who directs, guides, superintends, governs, or manages. One 
 of a number of persons elected or appointed, having authority to 
 manage and direct the affairs of a company or corporation. 
 
 DISAFFIRM 
 
 (Wor.) To annul or cancel, as a voidable contract. 
 
 DISCHARGE 
 
 The unloading or unburdening of a ship or cargo. (Wor.) The act 
 of setting free ; acquittance ; the instrument by which a person is 
 discharged from debt or obligation, or an encumbrance is cancelled. 
 
 DISHONOR 
 
 Refusal to pay ; to repudiate. 
 
 DISPOSSESS 
 
 To put out of possession ; to deprive ; to take away. 
 
 DISTRAIN 
 
 (Wor.) To seize and keep as a pledge in order to compel the per- 
 formance of some duty, such as the payment of rent, the perform- 
 ance of services, an appearance in court, etc. 
 
 DISTRICT 
 
 (Wor.) A civil division of a State or country for judicial or other 
 purposes. 
 
 DIVIDEND 
 
 The share or sum of the estate of a bankrupt paid to creditors. In 
 the case of stock, a sum to be distributed among the stockholders. 
 
GLOSSARY. - 295 
 
 DIVIDENDS ON (OR OFF) 
 (Seepage 215.) 
 
 DIVIDEND, STOCK 
 
 A dividend payable in reserved or additional stock. 
 
 DIVIDEND WARRANT 
 
 A paper calling for the payment of a dividend. 
 
 TO MAKE A DIVIDEND To set apart a sum of money, or 
 
 a number of shares for such dividend. 
 
 TO PASS A DIVIDEND To fail to make an expected 
 dividend. 
 
 DOCKAGE 
 
 A charge for the use of a dock ; dock rent. 
 
 DOCUMENT 
 
 A writing, or paper. 
 
 DOMICILIATED 
 
 A note, draft, or other obligation, when payable in a different place 
 from that in which it is drawn, is domiciliated in the place where it is 
 payable. 
 
 DOUBLE ENTRY 
 
 A mode of bookkeeping in which two entries, one credit and one 
 debit, are made of every transaction. 
 
 DOWER 
 
 That portion of a man's lands and tenements to which his widow is 
 entitled after his death, to have and to hold for her natural life. ' 
 
 DRAUGHT 
 
 Allowance on goods sold by weight. 
 
 DRAWBACK 
 
 (Wor.) Any sum of money paid back ; an allowance made by the 
 government to persons on the re-exportation of certain imported 
 dutiable goods ; also a repayment or remission of a duty laid on any 
 articles produced in a country, and suitable for the foreign market, 
 when such article is entered for exportation. 
 
 DRAWEE 
 
 The person on whom an obligation to pay is drawn. 
 
 DRAWER 
 
 One who draws a bill of exchange, draft, or other paper ; the maker. 
 
 DUNNAGE 
 
 Material used in the stowing of cargo in a vessel to preserve the 
 cargo from chafing or injury. 
 
296 GLOSSARY. 
 
 DUTY 
 
 A tariff or tax on certain domestic and imported articles. 
 
 
 
 E. E. 
 
 Errors excepted. 
 
 E. & O. E. 
 
 Errors and omissions excepted. 
 
 EMBARGO 
 
 A governmental detention or restraint of vessels or commerce by 
 preventing vessels or shipping from entering or leaving its ports. 
 
 ENDORSEMENT 
 
 The signing of one's signature on the back of any document. (See 
 Notes.) 
 
 ENDORSER 
 
 One who endorses. 
 
 ENDORSER FOR VALUE 
 
 One who endorses paper drawn to his own order to obtain the value 
 thereof, or who endorses paper payable to another, on being indemni- 
 fied against loss, or who receives a consideration for his endorsement. 
 
 ENTREPOT 
 
 A magazine ; a warehouse for depositing goods (Wor.). 
 
 ENTRY 
 
 A record. Reporting a vessel or cargo at the custom-house. Taking 
 possession of lands or tenements. 
 
 EXCISE 
 
 A tax upon articles of domestic production. 
 
 EXECUTION 
 
 The seizure by legal authority of goods, chattels, or rights for the 
 satisfaction of a judgment. 
 
 EXECUTOR 
 
 A person appointed by a testator in his will to see that its provisions 
 are carried out. 
 
 EXPRESS 
 
 A regular and speedy conveyance for messages, packages, etc. 
 
 EXPRESSAGE 
 
 The charge made by express companies for carrying. 
 
GLOSSARY. 297 
 
 P 
 
 FEE 
 
 A charge ; a bill. 
 
 FIRM 
 
 A partnership ; the persons composing a partnership. 
 
 F. O. B. 
 
 Free on board. To deliver to a particular transportation company 
 free of cartage charges. 
 
 FREE PORT 
 
 A port where goods may be landed free from custom-house restric- 
 tions (Wor.). 
 
 FREIGHT 
 
 Transportation charges. Articles in transit. 
 
 G 
 
 GARBLE 
 
 The dross, dust, and refuse of drugs and spices. 
 
 GARBLER 
 
 (In London) An officer empowered to inspect drugs and spices. 
 
 GARBLING 
 
 Selecting the worst of any commodity. 
 
 GRACE 
 
 The time beyond the .due date in which the debtor may make pay- 
 ment on a note, bill of exchange, or other obligation. 
 
 GROUNDAGE 
 
 The charge made for the ground or berth occupied by a ship while in 
 port. 
 
 H 
 
 HUSBANDAGE 
 
 The agent or managing owner's allowance or commission for attend- 
 ing to a ship's business. 
 
 I 
 
 INSOLVENT 
 
 One who cannot pay his obligations in full. 
 
 INSURANCE 
 
 The act of insuring or assuring against loss or damage by a contin- 
 
298 GLOSSARY. 
 
 gent event ; a contract whereby for a stipulated consideration, called 
 a premium, one party undertakes to indemnify or guarantee another 
 against loss by certain specific risks (Web.). 
 
 The person who undertakes to pay in case of loss, the " insurer" ; 
 the danger against which he undertakes, the " risk " ; the person pro- 
 tected, the "insured" ; the sum which he pays for the protection, 
 the "premium " ; and the contract itself when reduced to form, the 
 "policy." 
 
 Insurance is divided into Accident and Casualty Insurance, En- 
 dowment Insurance, Fire Insurance, Life Insurance, Marine 
 Insurance, etc. 
 
 INSURANCE BROKER 
 
 A broker who effects insurance. 
 
 INSURANCE COMPANY 
 
 A corporation which sells insurance. 
 
 INTEREST SHORT 
 
 (Marine Insurance) The amount over-insured. 
 
 INVOICE 
 
 An account, giving particulars, marks of packages, prices, etc., of 
 goods, furnished by a consignor to his consignee, by a seller to a 
 purchaser, or by a shipper to a transportation company. 
 
 J 
 
 JETTISON 
 
 The use, destruction, abandoning, or casting overboard of any part 
 of the ship's equipment, or for the sake of preserving the whole, 
 or the running aground of the ship to prevent sinking. The owners 
 of the cargo or property so used or destroyed, abandoned, or cast 
 overboard, have a right to recover its value pro rata from the ship- 
 pers whose property was saved. 
 
 JUDGMENT NOTE 
 
 A promissory note to which a confession of judgment is added, waiv- 
 ing necessity of lawsuit to procure judgment. 
 
 L 
 
 LETTER OF LICENSE 
 
 Creditor's permission to a debtor to manage his affairs without inter- 
 ference for a specified time. 
 
 LIGHTERAGE 
 
 The hire of a lighter or barge. 
 
GLOSSAK Y. 299 
 
 LINE OF DEPOSIT 
 
 The average amount, during a given period, on deposit to a dealer's 
 credit in the bank with which he deals. 
 
 LINE OF DISCOUNT 
 
 The amount of a dealer's discounts or loans from a bank. Also the 
 amount of credit which a bank extends a depositor. 
 
 LIQUIDATION 
 
 The act of settling or winding up. 
 
 LIVE PAPER 
 
 Unmatured promissory notes, in contradistinction to matured, dead, 
 or protested paper. 
 
 LLOYD'S REGISTER 
 
 A book issued by the Lloyds, setting forth the name, tonnage, build, 
 rating, and other matters pertaining to ships and shipping. 
 
 M 
 MANIFEST 
 
 A list or invoice, containing a description by marks, numbers, etc., 
 of a ship's cargo. Also, in the case of transportation and express 
 companies, a list of all goods to be delivered at a particular station. 
 
 MARGIN 
 
 (See Stock Brokers, page 186.) 
 
 MULCTS 
 
 Fines levied upon ships and their cargoes to maintain consuls, garri- 
 sons, etc. 
 
 NOTARY PUBLIC 
 
 A State officer empowered by commission to take acknowledgments, 
 administer oaths, take depositions, and protest notes and other nego- 
 tiable paper, within a certain county or counties as prescribed by law. 
 
 O 
 
 OVERDRAFT 
 
 Balance due on an overdrawn account. The amount of a check, 
 note, or draft in excess of the drawer's credit with the person on 
 whom drawn. 
 
 PAR 
 
 Face value. 
 
3<DO . GLOSSAX Y. 
 
 PAR OF EXCHANGE 
 
 The relative bullion value of the money of one country to that of 
 another. (See Exchange, page 44.) 
 
 PERMIT 
 
 A customs license to remove goods, after payment, of duties, from 
 public stores. 
 
 PIERAGE 
 
 Taxation for the maintenance of piers. 
 
 POLICIES, FLOATING 
 
 (Fire Insurance) Policies on goods in undesignated buildings, or in 
 two or more named buildings, where the amount of goods in each 
 building is not specified. 
 
 POLICIES, OPEN 
 
 (Marine Insurance) Policies in which the value of goods insured is 
 not specified. 
 
 POLICIES, VALUED 
 
 (Marine Insurance) A policy stating the value of the insured mer- 
 chandise. 
 
 POLICY 
 
 A contract between an insurance company and the insured. 
 
 PREMIUM 
 
 (Insurance) The charge made by the insurer to the insured for the 
 insurer's assumption of loss. 
 
 PREMIUM OF EXCHANGE 
 (See Exchange, page 44.) 
 
 PREMIUM ON SHARES 
 
 (See Stocks, page 209.) The price beyond the face value. 
 
 PRICE, AVERAGE 
 
 The average money value of securities or commodities for a length of 
 time. 
 
 PRICE CURRENT 
 
 A current list of the market price of commodities or securities. 
 
 PRICE, MARKET 
 
 The money measure of the value of securities or commodities. 
 
 PRIMAGE 
 
 A percentage allowed by shippers to the owners or charterers of a 
 vessel for the loading of goods. 
 
GLOSSARY. 301 
 
 PRIME EXCHANGE 
 
 Is exchange issued by houses of known solidity, whose bills are every- 
 where accepted. 
 
 PRINCIPAL 
 
 Capital. The sum on which interest is computed and paid. 
 
 PROCURATION. 
 
 Power or authority to act for another. 
 
 PRO FORMA 
 
 For form's sake. A fictitious transaction used to illustrate a business 
 dealing. 
 
 PROMPT 
 
 The period of time within which payment must be made for goods 
 purchased. 
 
 PROTEST OF NOTES 
 
 The notarial certificate required by law of the due presentation to 
 and refusal of, a maker to pay a note. 
 
 Q 
 
 QUARANTINE 
 
 The time which a ship must remain at a given point, called " Quar- 
 antine," before entry into port. (Leg.) The right of a widow to re- 
 main in the homestead of her husband for the period of forty days 
 after his death, without being liable for rent. 
 
 QUOTATIONS 
 
 The prices quoted or named. 
 
 R 
 
 REBATE 
 
 An allowance. A repayment by a lender to a borrower of interest 
 from the time on which an obligation is paid to that on which it 
 is due 
 
 RECEIPTS 
 
 Acknowledgments of delivery, payment, or satisfaction. 
 
 RECONCILE 
 
 To agree upon and correct differences in the details of an account 
 current. To cause the balance in each to correspond. 
 
 REGISTER 
 
 An official document relating to a vessel, stating its nationality, place 
 of building, measurement, etc. 
 
302 GLOSSAR Y. 
 
 RETIRE 
 
 To take up or pay before maturity a loan or note discounted. 
 
 RESPONDENTIA LOAN 
 
 Money lent upon the security of a cargo. 
 
 RETURNS 
 
 Remittances. Sales for a given time. 
 
 REVERSIONARY INTEREST 
 
 A right to possession of property at the termination of a precedent 
 estate. 
 
 S 
 SALVAGE 
 
 A compensation for rescuing or preserving a vessel, its cargo, or any 
 part thereof from entire or partial loss. The amount of such com- 
 pensation. 
 
 SCRIP 
 
 Dividends payable in stock issued upon the capital of a company. 
 
 STOCK, PREFERRED 
 
 (See Stocks, page 212.) 
 
 STOCK, SECOND PREFERRED 
 
 (See Stocks, page 212.) 
 
 STOCK SHORT 
 
 (See Brokers, page 190.) 
 
 SUPERCARGO 
 
 An owner's agent aboard ship to superintend the sale of cargo, to 
 procure freight, etc. 
 
 SURPLUS 
 
 A fund over and above the capital required to conduct a given enter- 
 prise. In banks, a fund in excess of the capital and legal reserve, 
 and out of which dividends are paid. 
 
 SUSPENSE ACCOUNT 
 
 An account of unpaid notes, disputed claims, and moneys in litigation. 
 An account of claims of dubious value. 
 
 T 
 
 TELLER 
 
 (See page 118.) 
 
 TIME BARGAIN 
 
 A contract to be performed at a future specified time, usually applied 
 to the purchase or sale of goods or securities. 
 
GLOSS A R Y. 303 
 
 TONNAGE 
 
 The carrying capacity of a vessel expressed in tons ; also the quantity 
 of freight a vessel is permitted to carry. 
 TRANSIT 
 
 A custom-house warrant or pass. 
 
 TRUE BILL 
 
 An indictment sanctioned by a Grand Jury. 
 
 U 
 
 UNDERWRITER 
 
 One who underwrites or guarantees the payment of a policy of insur- 
 ance ; an insurer. 
 
 USANCE 
 
 The time fixed by custom in which a bill of exchange may be paid 
 after the due date ; grace ; grace as applied to foreign bills of 
 exchange. 
 
 USURY 
 
 An interest charge above the rate of interest prescribed by law, and 
 applicable only to interest on debts and obligations on which the law 
 prescribes the maximum interest charge. 
 
 V 
 
 VALUE 
 
 (See page 4.) 
 VALUE, FACE 
 
 The value expressed on the face of an instrument. 
 VALUE, MARKET 
 
 The exchangeable value of a thing in open market, as distinguished 
 
 from face or par value, or price. 
 VALUE, PAR , 
 
 The full face value. 
 VOUCHER 
 
 A paper or document acknowledging that some payment has been 
 
 made or other business transaction effected. A receipted bill. 
 
 W 
 
 WAREHOUSE RECEIPTS 
 
 Receipts for merchandise issued by the warehouses in which such 
 
 merchandise is stored. 
 WARRANT 
 
 A draft drawn by its officers upon the treasury of a corporation, 
 
 national, State, or municipal treasury. 
 
 C Web Webster. 
 
 Dictionaries : ] 
 
 ( Wor Worcester. 
 
INDEX. 
 
 Agricultural products, 8l 
 American securities, 47 
 Arbitrage houses, 43 
 Assay Office, 67 
 Auxiliary industries, 9 
 
 B 
 
 Balance of trade, how settled, 46 
 
 Bank account, 129 
 
 Banks, 68, 70 
 
 Assistant cashier, 117 ; Bookkeeper, 
 126 ; Cashier, 117 ; Check deposit, 
 course of, 130 ; Check deposits not 
 to be drawn against same day, 127 ; 
 Currency deposit, 130 ; Deposit, 
 course of, 129 ; Deposit slip, course 
 of, 130 ; Directors, board of, quali- 
 fications, etc., 113; Discount, 123; 
 Discount clerk, 123 ; Discount de- 
 partment, 122 ; Ledger-keeper, 126 ; 
 Management of, 113 ; Methods of 
 business, no; Notes, presentation 
 of, 128 ; Note teller, 126; Offering 
 book, 125; Paper for collection, 125; 
 Pass books, 127, 129 ; Runners, 
 duties, 127 ; Vice-president, 116 
 
 Barter, principles of, 3, 5 
 
 Bill of lading, 243 
 
 Bills of exchange, 250 
 
 Bonds, 217 
 
 Car trust , 225 ; Collateral trust 
 , 222 ; Consolidated mortgage , 
 1st, 2d, and 3d, 221; Convertible , 
 222; Corporate ,217; Debenture 
 , 223 ; First mortgage , 220 ; 
 General mortgage , 224 ; Im- 
 provement and extension , 225 ; 
 Income , ist, 2d, and 3d, prefer- 
 ence, 221 ; Redemption before ma- 
 
 turity, 225 ; Remarks, 225 ; Second 
 mortgage , 220 ; Sinking fund , 
 224 
 
 Brokers, 182 
 
 Bear pool, 191 ; Bucket shops, 183 ; 
 Bull pool, IQO ; Business routine, 
 184 ; Charges, 184, 185 ; Commis- 
 sion houses, 183 ; Consolidated ex- 
 change, 182 ; Consolidation of 
 properties, 188 ; Curbstone , 182 ; 
 Information, 187 ; Interest charges, 
 186 ; Losses, 187 ; Margin, 185 ; 
 Margin, speculating on, 186 ; Mem- 
 bership in exchange, 182 ; Pools, 
 190 ; Price of stocks, 187 ; Quick 
 sale, 187 ; Rumors, 189 ; Shorts, 
 190 ; Specialists, 185 ; Speculation 
 of partners forbidden, 183 ; Tips, 
 189; Traffic agreements, 188 ; Two- 
 dollar, 185 
 
 Building and Mutual Loan Associa- 
 tions, 167 
 
 Amount of money invested in, 167 ; 
 Accumulation, method of, 168 ; 
 offering of, 179 ; bidding for, 176; 
 Consolidation and merger, 173 ; 
 Directors' powers, 171 ; Dividends, 
 172 ; Dues, 168 ; Funds to be put 
 up at auction and bid for 169 j 
 Gross premium, serial plan, 169 ; 
 Incorporation, certificate, what it 
 must state, 1 70; certificate of, to 
 be approved by superintendent, 
 etc., and filed with county clerk 
 and superintendent, 171 ; Incor- 
 porators, number of, 170 ; Interest, 
 176 ; Loans, limit of, 176 ; limit of 
 amount, 171 ; premiums on, 169 ; 
 theory of, 169 ; Matured shares, 
 order of payment, 176 ; Method, 
 167, 168 ; Minors and wards, how 
 held, 172 ; Monthly meetings, 176 ; 
 
306 
 
 INDEX. 
 
 Objects, 167 ; Officers and creditors, 
 liability of, 172 ; Old corporations 
 may reorganize under this law, 172 ; 
 Organized under State law, 167 ; 
 Penalties and forfeitures, 168, 171 ; 
 Shareholders, dissenting, rights of, 
 173 ; liability, 172 ; not exempt by 
 reason of losses, etc., 172 ; Shares 
 up to $600 exempt from execution, 
 172 ; Subscribers, 168 ; rights of, 
 169 ; Usury, 172 
 
 Cable and telegraph transfers, 244 
 
 California, discovery of gold in, II, 
 16 
 
 Capital, 28 
 
 Commercial definition, 29 ; dis- 
 tinguished from wealth and prop- 
 erty, 28 ; Insufficient capital, danger 
 of, 31 ; Invested capital, available, 
 31 ; Land not capital, 29 ; Necessity 
 of use, 28 ; Ratio of capital to busi- 
 ness, 30 ; Relation of capital to 
 property, 28, 29 ; Subject to decay, 
 28 ; Unemployed capital, 31 
 
 Cash, 231 
 
 Certificates of deposit, 257 
 
 Certificates of indebtedness (floating 
 debts), 226 
 
 Checks, 253 
 
 Cashiers' checks, 257 ; Course 
 through bank, 256 ; Devices for 
 protection, 255 
 
 Cheque banks, 242 
 
 Clearings, annual, 32 
 
 Clearing House (New York), 132 
 Balances, how paid, 135 ; Clear- 
 ances, average annual, 135 ; Clear- 
 ing charge, 133 ; Clearing house 
 certificates, 136 ; Clearings, annual, 
 132 ; Creditor banks, 135 ; Debtor 
 banks, 135 ; Delivery and settling 
 clerks, 134; Dues, annual, 133; 
 England, when clearing houses first 
 established in, 134 ; Government of 
 New York Clearing House, 137 ; 
 Importance of New York Clearing 
 House, 135 ; London Clearing 
 House, clearances, 136 ; Member- 
 ship, conditions of, 133; Object, 
 133: Officers and committees, 133; 
 Operation, 134 ; Original member- 
 ship, 132; Proof clerk, 134; Sub- 
 Treasury, 133 
 
 Clothing products, 50 
 
 Coinage a sovereign' prerogative, 15 
 
 Coinage, free, 24 
 
 Coins, 15 
 
 Government control of, 23 
 
 Commercial agencies, 234 
 
 Commercial bills, 243 
 
 Commercial houses, 230 
 
 Competition and combination, 55, 56 
 
 Comptroller of currency, 7 1 
 
 Co-operative Loan Associations, 173 
 Accumulations, 175 ; Attorney, 174 ; 
 By-laws, 174; Capital stock, 174; 
 Directors, board of, 173 ; Dues, 
 174 ; Entrance fee, 175 ; Fines, 
 174: Objects, 173; Officers, 173; 
 Organization, certificate of, 173 ; 
 Organizers, 173 ; Payments, when 
 to cease, 175 ; Shareholders, 175 ; 
 Shares, 174 ; Shares, unpledged, 
 may be retired by directors, 175 ; 
 Treasurer and secretary, 175 
 
 Copper, 6 1 
 
 Corporations, 200 
 
 Directors, residence of, 204 ; In- 
 corporation, certificate of, 204 ; 
 Objects, 200 ; Permits, 203 ; Per- 
 petuity, 200 ; Privileges, 200, 204 ; 
 Property owners, consent, 203 ; 
 Resident attorney in fact, 204 ; 
 Stock and transfer books, 204 ; 
 Taxation, 202 ; Treasury stock, 
 204 
 
 Corporations Duties of officers 
 Assistant secretary, 205 ; Bank to 
 be named, 206 ; Commissioners or 
 committee, 205 ; Directors, board 
 of, 207 ; General manager, 207 
 President, 205 ; Secretary, 205 
 Secretary and treasurer, 205 
 Treasurer, 205 ; Vice-president, 
 205 
 
 Coupons, 217 
 
 Credit 
 
 Amount, 32 ; on what extended, 
 34. 35 > system of country, 33 ; 
 Importance of, 7, 8, 32 ; Money'an 
 auxiliary to, 33 ; Paper money, 33 ; 
 Principles of credit, 31 ; Credit 
 Revenue of, to bankers, 35 
 
 Creditor banks, 135 
 
 Currency, governmental control of, 
 24-26 
 
 Currency, 10, H 
 
 of United States, 62 ; certifi- 
 cates, 63 
 
INDEX. 
 
 307 
 
 D 
 
 Debtor banks, 135 
 
 Demand, 54 
 
 Disproportionate increase of commodi- 
 ties, 51 
 
 Distribution, 53 
 
 Diversity of industry, how created, 51 
 
 Drafts, distinction between draft and 
 check, 248 
 
 Endorsements, 247 
 
 Exchange 
 
 Arbitrage houses, 43 ; Buying ex- 
 change, 40 ; complex, 41; domestic, 
 41 ; Final balance, 47 ; Final debtor 
 countries, 47 ; Foreign balance, 39 ; 
 how calculated, 42 ; Gold bullion 
 basis, 42 ; Par of, 44 ; Premium and 
 discount, 44 ; Rate of, 40 ; Relative 
 value of currencies, 42 ; constantly 
 changing, 42 ; selling, 44 ; specula- 
 tion, 40 ; Shipment of bullion, 47 ; 
 Simple exchange, 39 ; World's ex- 
 ports and imports equal, 46 
 
 Exchange, bills of, 250 
 
 Exchanges, 104 
 
 Exports and imports equal, 46 
 
 Express companies, 238 
 
 Final debtor countries, 47 
 Food products, 50 
 
 G 
 
 Gold the universal standard of value, 
 
 13, 58 
 
 Gold certificates, 63 ; coinage free, 
 
 24 ; money of the United States, 
 
 60 ; standard, 13, 58, 59 
 Greenbacks, 60 
 Gresham's law, 16 
 
 I 
 
 Interest, 35 
 
 Current interest, 35 ; Discount, 35 ; 
 Interest laws of States, 268 ; Interest 
 warrants, 229 ; Legal interest, 35 ; 
 Legal rate arbitrary, 35 ; to protect 
 debtors, 38 ; Market, 36 ; Principal, 
 35 ; Rate, 35 ; by what governed, 
 36, 37 
 
 Import duties, 57 
 
 Individual restraints of trade, 57 
 
 Investment securities, 228 
 
 Labor 
 
 Measure of productivity, 49 ; Meas- 
 ure of reward, 49 ; Price of, 49 
 
 Letters of credit, 258 
 
 Loans on collateral, 112 
 
 M 
 
 Margin, 185 
 
 Margin, speculating on, 186 
 
 Merchant, origin of, 7 
 
 Metals, restricted circulation, 59 
 
 Money 
 
 A legal tender, 22, 23 ; Collateral 
 restriction of use of, 20 ; Circula- 
 tion, theory of, 20 ; Definition, 9 ; 
 Effect on values, 9 ; Fiat money, 
 17 ; Government regulation of, 23 ; 
 of coin, 23, 24 ; of paper, 24-26 ; 
 How issued and distributed, 23 ; 
 Inconvertible paper money, 21 ; ob- 
 jections, 21 ; Increase and decrease 
 in value, 10, n ; Issuers must re- 
 ceive value, 25 ; Measure of value, 
 12 ; Metal money, 10, 15 ; Money 
 a commodity, 10 ; Not capital of 
 issuer, 26 ; Paper money, 10-12, 17; 
 by whom issued, 18, 19 ; how issued 
 and circulated, 24, 25 ; Proper is- 
 suers, 22 ; Proportion to credit, 9 ; 
 Single or double measure, 12 ; State 
 or national issue, 19 ; in what re- 
 deemable, 19 ; Supervision and con- 
 trol by government, 26 
 
 Money orders, 239 
 
 Monopoly, 56 
 
 Mortgage and debenture companies, 
 176 
 
 N 
 
 National banks 
 
 Articles of association, 71 ; Assess- 
 ment, 83 ; Banks and national 
 banks, 68, 70 ; Bonds, comparison 
 of, yearly, 75 ; exchange of, 75 ; 
 held for redemption of circulating 
 notes, 74 ; held in trust, 74 ; 
 may be sold to pay circulation, 
 88 ; reassignment of, to bank, 76 ; 
 Capital, impairment to be made 
 
308 
 
 INDEX. 
 
 good, 82, 83 ; minimum, 73 ; not 
 to be withdrawn, 82 ; Capital stock, 
 
 73 ; how paid in, 73 > how trans- 
 ferable, 73 ; not to be received as 
 collateral, 82 ; Central reserve cities, 
 79, 80 ; Certificate to be published, 
 
 74 ; Character of reserve and where 
 kept, 79, 80 ; Circulating notes, 76 ; 
 furnished by comptroller, form, 
 dies, etc., 76; not to be hypothe- 
 cated, 82 ; not to be used for adver- 
 tising, 79 ; Clearing house certifi- 
 cates, 80 ; Comptroller of currency, 
 71 ; Comptroller and treasurer given 
 access to each other's books, 75 ; 
 discretion of, 89 ; to decide if bank 
 is entitled to commence business, 
 74 ; Consolidation, 86 ; Contracts, 
 suits, 72 ; Corporate life, twenty 
 years, 71 ; powers, 71 ; Decrease of 
 bond deposit, 74 ; Deposit of bonds, 
 74 ; minimum, 74 ; with United 
 States Treasurer, 74 ; Depository 
 of government funds, 78 ; Destruc- 
 tion of plates, dies, etc., 77 ; Direc- 
 tors, election of, qualifications, etc., 
 77 ; Directors, officers, 72 ; Disso- 
 lution, notice to be sent comptroller 
 and published, 86 ; voluntary, 86 ; 
 Dividends, 81, 82 ; penalty for fail- 
 ure to report, 84 ; shall not exceed 
 net profits, 82 ; to be reported to 
 comptroller, 84 ; Examination of 
 plates, dies, etc., 77 ; ordered by 
 comptroller on notice of protest of 
 circulating notes, 87 ; Examiners' 
 powers and fees, 85 ; Executors not 
 personally liable, 78 ; Expense of 
 issue, how paid, 76 ; Gold banks, 
 79, 80 ; Incidental powers, 72 ; In- 
 corporators' organization certificate, 
 71 ; Increase of bond deposit, 75 ; 
 Interest, 81 ; Lawful money, defini- 
 tion, 79 ; reserve, 80 ; Liabilities, 
 82 ; not to be increased, 80 ; Liqui- 
 dation, 86 ; Maximum loan to one 
 party, 81 ; May only issue notes 
 furnished by the Federal Govern- 
 ment, 77 ; National bank notes not 
 to be used for advertising purposes, 
 penalty, 79 ; National banks, func- 
 tions of, 72 ; must receive each 
 other's notes at par, 81 ; " Natural 
 persons" defined, 71 ; State banks 
 may reorganize as national banks, 
 79 ; Stock sold on failure to pay, 
 
 73 ; increase or decrease, 77 ; Sur- 
 plus, 81 ; Taxes, 70, 84 ; Transfers 
 of bonds, 74 ; United States first 
 lien on assets, 87 ; Usury, penal, 81 
 
 National gold banks, 79, 80 
 
 Necessities of most universal value, 50 
 
 New York Stock Exchange, 196 
 Charges, 197 ; Devices, 199 ; Gala 
 days, 198 ; Gratuity fund, 198 ; 
 Membership, 198 ; Over-certifica- 
 tion, 198 ; Seats, 198 ; Stock deliv- 
 eries, 198 ; how and when paid for, 
 198. 
 
 Nickel, 60 
 
 Notary, 251 
 
 Note brokers, 192 
 
 Notes, indorsements of, liability of 
 maker, how limited, 246 
 
 Notice of Protest, 252 
 
 O 
 
 Over- certification, 112 
 
 Papers, 243, 250 
 
 Pools, 190 
 
 Postage stamps as money, 22 
 
 Post office orders, fees charged, 240 
 
 Preservative commodities, 50 
 
 Price, 48 
 
 Competition and combination, 55, 
 56 ; Corner, 57 ; Demand, effective, 
 54 ; Distinction between price and 
 value, 48 ; Distribution, 53 ; Ex- 
 cessive production, waste, 53 ; Fac- 
 tors of price, 52 ; High prices, 55 ; 
 Import duties, 57 ; Individual re- 
 straints of trade, 57 ; Labor, 49 ; 
 Low prices, 54 ; Monopoly, when 
 possible, 56 ; Preservative com- 
 modities, increase in value, 58, 59 ; 
 Price of wheat, 53 ; Production, 
 cost of, 52 ; Railways, canals, 
 steamships, 53 ; Restraint of trade, 
 56 ; Restricted circulation of metals, 
 59 ; Retail price, 50 ; Standard of 
 value, effect on price, 57 ; Supply 
 and demand, 54 ; Supply, available, 
 54 ; Trades unions, 55 ; Transpor- 
 tation and procurability, 52 ; Trusts, 
 
 55 
 Presentation of notes, drafts, etc., 251 
 
INDEH. 
 
 309 
 
 Private bankers, 178 
 
 Business of, 179; Capital of, 179 ; 
 Circulating notes, 179 ; Financing 
 companies, 179; Government grants, 
 181 ; Privileges of, 179 ; Promoting, 
 179; Railroads, construction, 181 ; 
 Reorganization of companies, 179, 
 
 1 80 ; Right of way of railroads, 
 
 181 ; Securities deposited with trus- 
 tee, i Si ; West, development of, 
 1 80. 
 
 Protest, 252 ; notice of, 252 
 
 R 
 
 Railroads, construction, 181 
 Railways, canals, etc., effect on 
 
 price, 53 
 
 Receivers' certificates, 227 
 Reclamations, 1 12 
 Refining gold, charge for, 23 
 Registered letter, 238 
 Restraints of trade, 56 
 
 S 
 
 Safe deposit companies, 163 
 
 Burglars, fire, etc., safeguards 
 against, 165 ; Box and safe holders, 
 165 ; Capital, maximum and mini- 
 mum, 163 ; Corporate life fifty 
 years, 163 ; Capital stock to be paid 
 in before commencing business, 164 ; 
 Consolidation, 166 ; Directors, num- 
 ber of, election, notice of, to be pub- 
 lished, powers of, 164 ; Incorporat- 
 ors, five, 163 ; Location, importance 
 of, 1 66 ; Objects, 163 ; Pass word, 
 165 ; President, 164 ; Rent of boxes, 
 when unpaid for three years, pro- 
 cedure, 165 ; Safes and boxes, ar- 
 rangement of, 165 ; Stockholders, 
 liability of, and right of contribu- 
 tion, 164 
 
 Savings banks, 138 
 
 Assets and liabilities to be reported 
 to superintendent 1st January and 
 ist July, 148 ; Available fund, 145; 
 Banks and trust companies, first 
 lien on their assets after payment 
 of circulating notes, 149 ; Books, 
 vouchers, etc., to be examined by 
 committee, 148 ; Business must be 
 begun within a year, 141 ; Business, 
 when to be commenced, 140 ; By- 
 
 laws, rules and regulations, and 
 amendments, copy to be sent super- 
 intendent, 141; Certificate of author- 
 ization, on what conditions granted, 
 where filed, 140 ; Committees, 141 ; 
 Creditors, how paid, 149 ; Custo- 
 dians of, 138 ; Depositors, classifica- 
 tion of, 147 ; Deposits and interest, 
 how invested, 143-145 ; Deposits, 
 amount of, limited, 143 ; in trust, 
 143 ; may be made by savings banks 
 in banks and trust companies, 145 ; 
 maximum, of individuals and cor- 
 porations, 143 ; of minors, 143 ; 
 Directors, number of, powers, quali- 
 fications, etc., 141 ; District of 
 Columbia, 138 ; Dividends and in- 
 terest, how declared, 148; extra, how 
 declared, 148 ; unearned, trustees 
 liable for, 148 ; Improved property 
 to be insured, 146 ; Incorporators, 
 number of, 138 ; Insolvent savings 
 banks, 149 ; Interest, allowance of, 
 how computed, 147 ; change of rate, 
 posted in bank, deemed personal 
 notice, 148 ; not to exceed 5 $, 147 ; 
 rate regulated by trustees, 147 ; 
 Liquidation, voluntary, 149 ; Loans, 
 restrictions in regard to, 146 ; Lo- 
 cation may be changed, 145 ; Or- 
 ganization, certificate shall state, 
 139 ; notice of intention, to be pub- 
 lished, 139 ; Pass book, in case of 
 loss, 147 ; to accompany check, 147; 
 Powers, limited by banking act, 141 ; 
 Quorum, seven, 141 ; Real estate, 
 how held, 144 ; Regulations to be 
 posted in bank and printed in pass 
 books, 143; Restrictions, 146; Stocks 
 and bonds, value to be determined 
 by superintendent, 148 ; Superin- 
 tendent, investigation as to pro- 
 posed company, 140 ; may apply 
 interest to defray expenses, 149 ; 
 may extend time to begin business, 
 141 ; may refuse to file certificate 
 of organization, 139 ; to give notice 
 to county clerk of refusal, 140 ; to 
 report to legislature, 149 ; Surplus, 
 fund to be accumulated, 147 ; how 
 determined, 148 ; Trustees, com- 
 pensation of, 142 ; may not borrow 
 from bank, 142 ; may require bonds 
 of employees, 142 ; not to be inter- 
 ested in profits, 142 ; when office 
 becomes vacant, 142 
 
3io 
 
 INDEX. 
 
 Seigniorage, 24 
 
 Sherman law, 24 
 
 Silver, n, 14 
 
 Coinage limited, 24, 60 
 
 Silver certificates, 63 
 
 State banks, 90 
 
 Affidavit of officers, 94 ; Annual re- 
 port to legislature, 97 ; Banks and 
 officers, 113; Bank, definition of, 
 93 ; Banking Department, 93 ; 
 " Bank," unauthorized persons pro- 
 hibited from using word, penalty 
 and exception, 109; Bills and notes 
 must be payable on demand, 107 ; 
 Bills payable in money, 108 ; Bonds 
 and mortgages, 95 ; Call loans, 105 ; 
 Capital, impairment of, 95 ; mini- 
 mum to be paid in, 94 ; Capital 
 stock, how to be paid, 103 ; Causes 
 of failure of State banking systems, 
 90 ; Certificate of authorization to 
 commence business, 94 ; Certificate 
 of individual banker, 100 ; Certifi- 
 cate of organization to be filed with 
 superintendent and county clerk, 
 99 ; to provide, 99, 100 ; Change 
 from National to State bank, 105, 
 from State to National bank, 105, 
 
 106 ; of certificate, 99, 100 ; Circu- 
 lating notes, etc., 106, 107 ; Circu- 
 lation below par not to be paid out, 
 
 107 ; Conditions different in 1892 
 from previous to 1862, 91 ; Con- 
 solidation of banks, 102 ; notice of, 
 etc., 102 ; Contracts, circulating 
 notes, how signed, etc., 104; Cor- 
 porate life, 99 ; Creditors to receive 
 notice, 107 ; Creditors or share- 
 holders may apply for examination 
 of securities, 96 ; or for receiver, 
 98 ; Directors, 105 ; oath, 103 ; 
 qualifications, etc. (hold office for 
 one year), 103 ; Dissenting stock- 
 holders, 102 ; Examiner, not to be 
 appointed receiver, 93 ; reports to 
 be published, 95 ; Foreign bank 
 notes not to be issued, 107 ; Foreign 
 banking corporations must make 
 same deposits as State banks, 95 ; 
 to secure permission to do business, 
 and appoint superintendent their 
 attorney, 98 ; instructions, 98 ; not 
 to receive deposits, 108 ; General 
 powers, 100 ; Grace, none, 108 ; 
 Incorporators, five, 99 ; Indiana, 
 Ohio, Louisiana, Massachusetts, 
 
 and New York systems, 91, 92; 
 Information, penalty for refusal to 
 furnish, 96 ; Interest, rate of, 104 ; 
 on call loans, 105 ; Lawful money 
 reserve, amount, where and how 
 held, not to be impaired, etc., 101 ; 
 Loans, limit of, 97 ; Location, 
 change of, 98 ; Losses, how charged, 
 97 ; New York State banking laws, 
 92 ; Notes payable on demand only 
 to be issued, 107 ; in lawful money 
 only to be circulated, 108 ; Officers 
 not to purchase commercial paper at 
 less than face value, 97 ; Plates and 
 dies, destruction of, 106 ; Powers 
 of banks, 100 ; President to be a 
 director, 103 ; Private bankers, 100 ; 
 to give information, 96 ; Profits, 
 calculation of, 97 ; Real estate as 
 security for circulation, 95 ; Real 
 Estate, how held, 101 ; Receiver, 
 appointment of, 98 ; Reports of 
 examiners may be published, 95 ; 
 Reports, quarterly, summary to be 
 published, 96 ; penalty, 96 ; Residue, 
 distribution of, 107; divided among 
 stockholders, 107 ; Restrictions as to 
 officers, 97 ; Securities, comparison 
 of, yearly, 93 ; deposit of, 94, 95 ; 
 deposited with Banking Department 
 as guarantee of good faith, 105 ; 
 kinds of, deposited with Banking 
 Department, 94, 95 ; may be ex- 
 changed, 95 ; State Banking De- 
 partment, 93 ; Superintendent, 93 ; 
 Stockholders, definition of, 104 ; 
 dissenting, to consolidation, 102 ; 
 liability, 104 ; Transferees of stock, 
 104 ; Uniformity in value of notes, 
 91 ; Usury, penalty of, 104 
 
 Stock brokers, 182 
 
 Stockholders, 210 
 
 Stocks or shares, 209 
 
 Assented, 216; Assessable, 21 1 ; 
 Common, 212; Cumulative, 212 ; 
 Dividend, 215 ; Ex-Dividend, 215; 
 First assessment paid, 216 ; Guar- 
 anteed, 216 ; Non-assessable, 211 ; 
 Non-cumulative, 213 ; Preferred, 
 212 ; Promoters', 215 
 
 Sub-Treasury, New York, 64 
 
 Balances, 66 ; Cost of handling 
 money, 65 ; Disbursements, 66 ; 
 Receipts, 66 
 
 Supply and demand (price), 54 
 
 Supply, available (price), 54 
 
INDEX. 
 
 Trades unions, 55 
 
 Transmission of money, 237 
 
 Post office orders, fees charged, 237 
 
 Transportation, 52 
 
 Transportation and procurability, 52 
 
 Transportation companies, 53, 181 
 
 Treasury notes, 62 
 
 Trust companies, 150 
 
 Authorization, certificate of, to be 
 filed with county clerk and super- 
 intendent, 159; Authorization may 
 be refused by superintendent, 159; 
 Auxiliaries to banks, 152 ; Banks, 
 comparison with trust companies, 
 151 ; relation to, 150; Capital, en- 
 tire amount to be paid in, 158 ; 
 how invested, 159 ; minimum, 158 ; 
 Circulating notes, not issued by 
 trust companies, 155 ; Consolidation 
 and merger of trust companies, 162 ; 
 Corporate life, fifty years, 153 ; 
 Depositors, character of, 152 ; De- 
 posits, character of, 152 ; Directors, 
 board of, how chosen, 160 ; election 
 of, 161 ; how classified, 160; lia- 
 bility of, 161 ; qualifications, 160 ; 
 Escrow, papers held in, 154 ; Ex- 
 ecutor, administrator, etc., when, 
 . to furnish statements, accounts, etc. , 
 159; Financial agent, as, 162; In- 
 corporators, number of, 158 ; Super- 
 intendent to ascertain as to fitness, 
 158 ; Interest, on what paid, 160 ; 
 Letters testamentary, etc., 159; 
 Loans, character of, 152 ; Manage- 
 ment, 160 ; Organization certificate, 
 notice to be published and sent to 
 other trust companies before filing, 
 158 ; what it must state and where 
 to be filed, 158 ; Payment of money 
 .and performance of obligations, 
 
 agent for, 155 ; Powers and limita- 
 tions, 156, 157; Registrar, 154; 
 Reorganization, agent of, 154 ; 
 Stock and bond holders, agent of, 
 154 ; Stockholders, liability of, 161 ; 
 Stocks, holding of, limited, 1 60 ; 
 Trust company, incorporated under 
 special laws, 161 ; Trust funds, how 
 invested, 160 ; Trustee, executor, 
 administrator, etc., advantage of 
 trust company, 153. 
 Trust company receipts, 226 
 
 U 
 
 Uniformity in value of notes, 69 
 United States money, table of, 64 
 United States notes (greenbacks), 62 
 United States Treasury notes, 62 
 
 Value, definition and principles of, 4 
 Divisibility, 7 ; fixed by barter, 5, 
 1 7 ; gold the universal standard of, 
 13 ; Intermediate, 7 ; Intrinsic, 5 ; 
 Labor measure of, 4 ; Limitation 
 of quantity, 5 ; Measure of, 5, 12 ; 
 Metals the measure of, 6 ; Relative, 
 ii ; Standard, 12 ; how fixed, 12 ; 
 Standard of, effect on price, 57 ; 
 where fixed, 1 2 
 
 Values of Foreign Coins, Table No. 
 I., 262 ; Remarks as to use of table. 
 264 
 
 W 
 
 Warehouse receipts, 243 
 
 Weight of Unit of Foreign Currencies 
 
 (Table No. II.), 266 ; Remarks as to 
 
 use of table, 264 
 West, development of, 180 
 
YC 23910